Personal Loans: What are They and How They Affect Your Credit Score?

does personal loan affect credit score
Written by William Jameson
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A personal loan can be borrowed from anyone, whether a bank, an organization, or a single person. It is when money is borrowed from similar parties for some financial emergency or need like financing a large purchase, paying off debt, or even a medical emergency. To make things official, you can lend money from banks, online lenders, and other finance lenders. Personal loans can impact your credit score in both negative and positive ways depending on you and your payment history. 

If you mismanage your funds or are irresponsible, they can be picked up by your lender as they will appear on your payment history. That can result in being reported by the lender to the credit bureaus. This can have a major impact on your credit score in a negative way. Also, lowering it drastically further puts you in a position of disadvantage regarding future financial loans. So are personal loans bad? 

No, on the bright side, if you manage your funds properly and are responsible for it along with making on-time payments, you can easily let personal loans build credit. Making on-time payments will increase your creditworthiness and show you as a responsible candidate, further helping you with your chances of qualifying for any future financial debts.

How Does a Personal Loan Affect Credit Score?

If you’re wondering how does personal loan affect credit score, you’ve come to the right place. A personal loan is a high-risk personal loan but can help you build your credit score as it is basically a loan that is chopped up into a series of smaller loans. Hence your payment periods are also shortened to either biweekly or monthly; if you can be on time with these payments, you are set to see your credit score increase. 

On the dull side, if you miss a payment or pay late, it can definitely hurt your credit score. However, it depends on the lender, too, as on-time payments can only help you and your credit score if your credit lender reports to the credit bureaus on time. Be careful while choosing your credit lender, and only pick the lender that provides the service and reports to the credit bureaus. Personal loan lenders often report your late payments with unnecessary exaggeration, adding to your late fee charges. 

Always remember payment history is one of the most important factors leading up to your credit score, it makes up 35% of your credit score. Keeping your payment history as ideal as possible is very crucial, as one missed or late payment can change your credit score drastically and rapidly and cause problems while applying for personal loan build credit. Yet, it can take months and even years to establish a clean and credible payment history to help build your credit score. 

The consequences of mismanagement in regard to your payment history when taking a personal loan might be a lot, so, if you’re questioning, “do personal loans hurt your credit”, the answer is yes. However, the positives might be a trade worth your while.

Taking a personal loan can impact your credit score in a positive manner and help you better your credit mix. Your credit mix is basically a compilation of all the different types of credit accounts under your name, like personal loans, mortgages, auto loans, credit cards, etc. Your credit mix makes up 10% of your credit score.

Though it’s not necessary, still having different types of accounts can be beneficial for your credit score as this shows the lenders that you are responsible and increases your creditworthiness. This can be massively advantageous to you as lenders are likely to see you as a credible borrower when you apply for a new form of credit like a car loan or a mortgage thus increasing your chances of qualifying for such loans.

Types of Personal Loans

If you are someone looking to take a personal loan you might have questions like “Do personal loans build credit?” or “Does a personal loan hurt your credit?” to answer such questions read on.

Secured Personal Loans

Secured personal loans are loans in which you are required to pledge security by putting in a collateral or cash deposit to qualify. You can put anything as collateral like your car or other vehicles, your home or any other property, etc. Although secured loans have lower interest rates than unsecured loans the lender possesses the liberty to seize your collateral in you fall behind on payments.

Unsecured Personal Loans

Unsecured loans are the most widely drawn form of personal loans. This means that you as a borrower, do not need to pledge security or put down collateral, to qualify. You can get an unsecured loan without collateral or a security deposit. With an unsecured loan, you will be provided with a lump sum of cash which you then repay with fixed monthly payments or a personalized fixed repayment term.

Specialized Lenders

Specialized lenders are service-oriented companies who sometimes offer loans for federal employees to help them with financial emergencies or to help them afford certain products or items from the same company regardless of their scale. For example, you might get financing from a home appliances company when you buy their product. These loans are beneficial in some cases but don’t usually have the best terms and conditions.

Credit Builder Loans

Credit builder loans are loans that are deposited in a savings account controlled by the lender and you are required to make payments on your balance for the entire repayment term. Meanwhile, the lender monitors your payment and credit activity during this period and then reports to the credit bureaus to help you build credible and responsible credit use. This is a personal loan build credit type of loan.

Try to pick a good lender for your personal loan, who doesn’t ruin your credit and helps you build credit, even though it can be pretty tough. Your credit card lender must provide some necessary services like reporting to all three credit bureaus, covering the specific type of loan you need to borrow, etc to make it worth the trade. Below is a table comparing some of these compulsory factors your lender should provide you in a personal loan for bad credit:

   Lender Geographical Availability Types of Debt Covered Repayment Flexibility Overall Rating
Upstart 50 states Covers all loan types Only offers immediate repayment & limited repayments plan 4.4
AmOne 50 states Covers all loan types Offers multiple repayment plans- but no personalization 3.8
Fiona 50 states Covers all loan types Offers multiple repayment plans- but no personalization 4.2
Freedom DR 50 states Covers all loan types Offers multiple repayment plans- but no personalization 4.6
SuperMoney 31 states Covers most types of unsecured debt Offers flexible, personalized debt solution plans to resolve your debt 4.6

Best Personal Loan for My Credit Score

1. SuperMoney


SuperMoney is one of the leading competitors in the multi-lending marketplace, making it super convenient for borrowers to loan money anytime, without any negative impact on their credit score, especially for personal loan build credit. It offers debt consolidation loans where eligible borrowers can fill out a form and receive a debt consolidation loan instantly within seconds.

The most important thing that SuperMoney offers to its customers is transparency. It offers a real-time comparison of different debt consolidation loan lenders by providing an easy application form. They practice this by a soft credit pull which doesn’t affect your credit score. SuperMoney offers and accepts a wide range of unsecured loans for their borrowers to loan along with a free initial consultation. However, there’s a risk of a negative impact on your credit score with SuperMoney. Note, that user must provide personal details to be matched with providers.


  • Compare multiple debt consolidation loans providers with one form
  • Support for all types of consumer debt
  • Free service


  • User must provide personal details to be matched with providers
  • No telephone support (internet-only platform).

2. Freedom DR

Out of all its competitors Freedom DR stands out and is one of the biggest negotiators of loans in the U.S. They offer all types of various services of a wide range like credit card loans, unsecured loans, secured loans, personal loans, medical loans, and other financial needs. This lender offers a free initial consultation and also an online service for tracking the status of your account along with customer support service 7 days a week. This lender truly demolishes any negative notions about personal loans and puts a pause on questions like “ are personal loans bad?”

Freedom DR puts customer service at the top of its priority list, they also specialize in unsecured debt loans. From the get-go you are offered a free and personalized consultation to help you find your perfect loan plan and if Freedom DR can offer you such debt solutions.

Their support team is available 7 days a week so if you pick Freedom DR as your lending service you can always have customer service at your fingertips. There is also an online dashboard provided to monitor your account and transactions.


  • Accepts a wide range of unsecured debts
  • Free initial consultation
  • A+ BBB rating


  • Can negatively impact your credit score
  • Not available in all 50 states

3. Upstart


Upstart is a marketplace for lending, it uses AI and advanced algorithms and harnesses the energy to offer customers affordable and easy financing while decreasing risks for the lender at the same time. This system works extremely well for borrowers and it is user-friendly. This system helps borrowers in multiple ways and provides them with loans even if other lenders might turn them down. Upstart is unique as a marketplace and stands out because it makes use of your education level to determine if you should be approved for a loan or not.

With an advanced degree, if you happen to have a poor credit score then most lenders are likely to turn you down but Upstart might still approve of your loan. Although it’s not necessary to have a minimum education for application, yet its a major factor that plays a very important role in receiving your loan.


  • Considers borrower’s education* during the approval process
  • Returns a potential rate in under 5 minutes
  • No prepayment penalties


  • Origination fees of up to 8%
  • Terms max out at five years

4. Fiona


Fiona is a very well-known marketplace, working with amazing brands in the alternative lending business. They offer quick and easy pre-qualifications in real-time. You can avail of this service by simply filling out an online which is very user oriented hence short and simple. By doing this simple process as a borrower you can get matched with a lender most likely for prequalification purposes making its money and time-saving for both parties. This online application provides you with real-time personalized loan plans that are best for you from competing lenders.

Fiona is a marketplace based on advanced algorithms and has created a fitting space for lenders and borrowers of all types and financial backgrounds. A varied and long list of trusted and credible lenders have partnered up with Fiona like Rise, Avant, Vouch, LightStream, etc. A noteworthy number of reputable news agencies have also vouched for and praised Fiona like Crowdfund Insider, Dow Jones, and The Wall Street Journal.


  • Single application for multiple lenders
  • No negative impact on credit score


  • Borrowers may be bombarded with offers
  • There is a limited number of providers

5. AmOne


AmOne is a respectable and established lender that offers a wide range of loan options to its customers. It provides you with benefits like long repayment terms and affordable interest rates for its borrowers. Making use of its varied and wide lending network. Customers can compare the available options. After comparing the options that provide the specification, they need, they can apply for a loan. That is tailored perfectly to their needs. AmOne was established in 2005 and is one of the most dedicated lenders when it comes to helping and cooperating with its customers. 

AmOne helps its customers with finding the best possible loan plans and financing solutions. However, AmOne itself does not originate loans. It has helped hundreds of satisfied customers with over $16 billion in funds. Ever since it was founded without charging a single fee. It simply connects you with a wide network of reputable lenders and lets you find your perfect match.


  • Range of loan terms and amounts
  • Network of lenders offering good deals


  • Lack of customer support channels
  • Not enough information on rates and terms

Negative Impact of Personal Loans

Even though many personal loan build credit, just like any other credit type, misuse of a personal loan can also result in a negative impact on your credit score. You may ask, “how does a personal loan affect your credit score?” Well, similar to applying for any other loan, like mortgages, auto loans, etc. Applying for a personal loan can also impact your credit score. Credit card lenders do a hard investigation on your credit activity every single time it is done. This entry shows up on your credit report resulting in a dip in your credit score.

To counter this you have to be strategic while applying for a personal loan. If you apply for a personal loan right after you applied for a new credit card. It could result in a bigger drop in your credit score upon a hard investigation which would be done for both scenarios. Online lenders often offer an online tool so you can compare and figure out the interest rates. You should hope to qualify depending on your provided information.

Doing the pre-qualification process and getting an estimate will not only not harm your credit score. But will also help you view the best possible interest rate, even before you submit your application. You can easily answer “Are personal loans bad?” simply by being at the top of your money and credit management skills.

When Should You Take a Personal Loan?

When Should You Take a Personal Loan?

Personal loans are a quick and easy way to get rid of your financial troubles but they are quite expensive in nature. It is always wise to consider any less expensive ways available that you could borrow before opting for a personal loan. However, some people still prefer choosing personal loans due to some aspects of it which can make it worth the trade for some. Some of the reasons to pick personal loans are

  • You do not possess a low-interest credit card or you couldn’t qualify for one.
  • The credit limit on your card is lower than your current needs.
  • You do not have any options that are less expensive than personal loans.
  • You have no collateral to pledge security with.
  • You can also consider taking a personal loan if you need a small amount of loan and a decent repayment term. Repayment terms for personal loans are typically from 12 to 60 months.

Personal loans can turn out to as beneficial if given the right circumstances. However, they don’t come cheap; there are multiple alternatives that are less expensive.

How to Apply for a Personal Loan?

  1. Any borrower is entitled to a copy of their credit report each year for free. Check your credit, and ask for copies of your credit report, recorded by Equifax, TransUnion, and Experian. This can save you from applying for a loan before you have done your initial research, or are ready for a potentially hard inquiry. That can impact your credit score in a negative way and lower it. Go through your credit report and look for any errors on it. If you find any errors on your credit report dispute it with the appropriate credit bureau.
  2. Decide your loan amount. This is determined by the amount you need and the amount you can afford to pay back. Don’t forget that you need to also pay interest o the amount you borrowed. Some lenders may even charge additional fees on the interest rates can dramatically increase the total cost of the loan. It is always wise to borrow the exact amount you are in need of.
  3. Compare and research different lenders. Look for lenders that can offer you the best terms and conditions which are in your favor and compare them. Contact your chosen lender, and verify the amount you might be eligible to receive based on your profile.
  4. Once you are done comparing and picking your lender your last step is to apply. After the prequalification, you can submit a formal loan application. The time period needed to receive the fund depends on the lender and can vary. In some cases, you can receive same-day funds, whereas in other cases, you might need to wait 4-5 business days.


Q1. Is a personal loan the right choice for you?

Personal loans can be the right choice for you if you have no other alternative options in your present condition and you want a quick solution to your financial emergencies. If you don’t mind going the expensive route or pledging security with collateral then personal loans are the perfect choice for you.

Q2. Will your credit score drop if you get a personal loan?

Similarly to any other credit, personal loans may hamper your credit score, depending on your history of repayment and credit report. If you are irresponsible with your payment on your personal loan, miss a payment, or pay it late, it will get registered on your credit report and get sent to the credit bureau. 

This can impact your credit score negatively, to avoid this do your payments on time and increase your creditworthiness which can result in a positive impact on your credit score.

Q3. Where should I get a personal loan?

You should get your personal loan from a lender that you can trust. In order to get to that point, you have to research and compare. After finding the best lenders and filtering out the rest as per your financial needs, you need to compare all the aspects, such as the APR, repayment terms, reporting to credit bureaus, etc. Once you pick the lender you want, contact them and ask for a consultation, so you can figure out the loan plan according to your needs.

Q4. How much does a personal loan affect your credit score?

So, does a personal loan affect your credit score? Personal loans impact your credit score negatively. If you let them, they build your credit. This means that a personal loan works like any other loan. If you complete your repayments on time, it won’t affect your credit score at all. 

On the other hand, if you mismanage your credit or use it irresponsibly. It will reflect on your credit report. Also, decrease your credit score substantially. Even if there isn’t a specified amount. Hard inquiries have the potential to reduce your credit score by up to 10 points.


In a nutshell, Personal loans are the same as any other loans like auto loans, mortgages, and credit card loans. They also work in a similar way. If you are irresponsible with your funds, it can affect your credit score drastically and lower it. However, personal loans can turn out to be beneficial under the right circumstances. It is wise to look for other alternatives if you have options.  However, you can afford those because even though personal loans are convenient. They are very expensive as it has either high-interest rates or the risk of losing your collateral. So to answer your questions, “Do personal loans build credit? or “Does a personal loan hurt your credit?” It depends on how you manage your credit and funds.

About Post Author

William Jameson

As one of the members of our editorial team, William Jameson is responsible for driving the vision of what we want to communicate on our website about the latest financial services, loan offers, and credit card offers. With more than 10 years of experience in content creation and copywriting, William Jameson is an expert in his craft. He has a Bachelor’s degree in Communications from the University of California and has held various positions within journalistic outlets prior to joining our team. With his knack for concise yet informative pieces, He ensures that every article published in City Hall News contains valuable information that readers can take away with them.
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About the author

William Jameson

As one of the members of our editorial team, William Jameson is responsible for driving the vision of what we want to communicate on our website about the latest financial services, loan offers, and credit card offers. With more than 10 years of experience in content creation and copywriting, William Jameson is an expert in his craft. He has a Bachelor’s degree in Communications from the University of California and has held various positions within journalistic outlets prior to joining our team. With his knack for concise yet informative pieces, He ensures that every article published in City Hall News contains valuable information that readers can take away with them.

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