While taking out a new personal loan can help you consolidate high-interest debt, improve your cash flow, or achieve another goal, it can also affect your credit score.
Applying for a personal loan affects your credit score at two separate moments: the hard inquiry when you submit an application, and the new account itself once the loan funds. The first typically causes a small, temporary dip, while the second can produce a bigger impact that usually reverses as you make payments.
BHG Financial dives deeper into what happens to your credit score at each stage and how you can protect your credit over time.
Key takeaway
Expect a small, temporary credit score drop when you formally apply for a personal loan. If approved, you might see another modest impact since the new account can affect your credit history length, credit mix, amount owed, and payment history. Manage your new account responsibly to help offset the early credit score impacts over time.
How does a new personal loan application impact your credit score?
When you submit a formal personal loan application, your lender will perform a hard inquiry. This involves reviewing your credit reports to determine if you’re a good risk to the lender and likely to repay your new loan.
According to myFICO, a hard credit pull typically only lowers your score by 5 points or less. It can stay on your credit report for one to two years and factors into the "new credit" component that makes up 10% of your FICO score.
Understanding hard vs. soft credit inquiries
A hard inquiry is a normal process that occurs when a lender reviews your credit to make a lending decision. This type of inquiry does affect your credit. A soft credit inquiry is just as common, but it works differently.
Many lenders offer a prequalification process that lets you review potential personal loan terms with only a soft credit inquiry needed. Lenders also sometimes run this type of credit check for account reviews and promotional offers.
Unlike a hard credit inquiry, a soft credit inquiry doesn’t typically affect your credit score. Plus, it shouldn’t show up on your credit report to other lenders.
How does rate shopping affect your credit score?
FICO's latest research, conducted in July 2026, found that 58% of consumers either incorrectly believe that shopping around for interest rates lowers a credit score or weren't sure whether it does. The answer depends on how you shop.
While applying to several lenders over an extended period can result in multiple hard inquiries on your credit report, the major credit bureaus typically treat multiple hard inquiries for similar accounts within a specific timeframe as a single inquiry. So, rate shopping often has less impact on your score than many borrowers expect.
According to TransUnion, you usually get a 14-day window to shop rates before it would count as another hit, but this may vary depending on the credit score model your lender uses.
Example: If you apply for personal loans through three lenders over a week, you might see a single 5-point-or-lower drop to your credit score. But if you also applied for credit cards (revolving debt) during that time, multiple hard inquiries could ding your score.
How does opening a new personal loan account affect your credit score?
Opening a new personal loan can affect the four key factors that determine your credit score: length of credit history, amount owed, credit mix, and payment history.
Length of credit history
- Short-term effect: Slight decrease
- Long-term effect: Builds gradually as the account gets older
Credit mix
- Short-term effect: May improve
- Long-term effect: Demonstrates responsible use of installment credit
Amount owed
- Short-term effect: May drop
- Long-term effect: Positive, as the credit utilization decreases
Payment history
- Short-term effect: Neutral at opening
- Long-term effect: Strongly positive with on-time payments
Length of credit history
The length of your credit history accounts for 15% of your FICO score. When you open a new personal loan account, your average account age can be reduced, slightly lowering your credit score. However, the specific impact can vary based on how old your other accounts are and when you last used them.
As your new personal loan account ages, the initial credit score effect should fade away if you don't open or close other accounts. This is especially important to consider if you're using the personal loan to consolidate existing debts; closing out those consolidated accounts can lower your credit score temporarily.
Credit mix
Your credit mix makes up 10% of your FICO score. It refers to the types of accounts you have, such as mortgages, installment loans, and credit cards.
If your new personal loan diversifies your debt, it might slightly improve your credit score, since lenders will see that you can responsibly manage another type of debt. If you have existing installment loans, you might not see an impact on this area.
Amount owed
The amount of debt owed and used compared to your total available credit limits accounts for 30% of your FICO score. Opening a new personal loan can lead to an initial drop in this area since you’ll owe 100% of that loan balance.
However, paying down the balance can help your credit score over time, depending on how you manage other accounts. Additionally, consolidating other debt with your new personal loan might improve your credit utilization if you minimize other balances moving forward.
Payment history
When you first open your personal loan, your payment history for the new account is a blank slate. That means you’ll see an initially neutral impact on the payment history component of your FICO score, which accounts for 35% of it.
Once repayment begins, making on-time payments is good for your credit score. In contrast, Experian reports that missed loan payments can stay on your credit report for up to seven years, damage your credit, and result in potential fees.
How to protect your credit when taking out a new personal loan
You can protect your credit by understanding the different credit components and implementing some of the following best practices to manage it proactively:
- Review your credit reports: So that lenders see the most up-to-date information, look for credit report errors, such as incorrect account balances or statuses, before applying for the personal loan. Dispute any inaccuracies using the Consumer Financial Protection Bureau's guidance.
- Apply with lenders that offer prequalification: Begin with soft-pull prequalification whenever possible and submit formal applications within the 14-day window to minimize the effects of hard inquiries.
- Choose your loan wisely: Borrow only what you need and choose a payment schedule you can comfortably afford to keep your debt-to-income ratio healthy.
- Avoid other new accounts: Don't open other new credit accounts outside your rate-shopping window, so you can limit additional hard inquiries and preserve the average age of your accounts.
- Make on-time payments: Set up autopay or payment reminders to prevent late or missed payments once your personal loan is open.
- Manage all debts responsibly: Pay all other bills on time, keep your credit utilization on revolving accounts under 30%, and avoid closing old accounts without a plan.
- Handle consolidation wisely: If consolidating debt, keep paid-down credit cards open when practical and avoid adding new charges to keep your utilization low.
FAQs about personal loans and credit scores
Does applying for a personal loan hurt your credit score?
When you apply for a personal loan, you’ll typically see a small drop of up to 5 points due to the hard credit check your lender runs. However, this negative effect is temporary.
How long do personal loan inquiries stay on my credit report?
Hard inquiries generally remain on your credit report for two years, but their impact on your credit score usually fades after about 12 months.
Can multiple personal loan applications lower my credit score more?
Spreading out your personal loan applications can compound the effect on your credit score. If you stick to applying within a short rate-shopping window (typically 14 days), many scoring models treat multiple inquiries for the same loan type as a single inquiry.
Do preapprovals or prequalifications affect my credit score?
Since a prequalification involves a soft credit check, it shouldn’t affect your credit score or appear on your credit report. Some preapprovals, such as for mortgages and auto loans, require hard credit checks, which show up on your credit report and affect your score.
This story was produced by BHG Financial and reviewed and distributed by Stacker.
