How A Personal Loan Affects Your Credit Score

Wondering how a personal loan affects credit score positively? Loans have an impact on your score, but depending on how you manage your debt, it can be either a positive or a negative one.

This guide from Utah Title Loans, Inc. will explain everything that you need to know to make sure that your credit score doesn’t experience a major drop after you take out a personal loan. We will also explain how to improve your credit score with our personal loans, including payday loans and signature installment loans.

Does Taking Out A Personal Loan Hurt Your Credit?

When you need emergency cash to help pay for a financial emergency, you may worry about personal loan impact on your credit report. Does taking out a personal loan hurt your credit? Before we can answer that question, it’s essential to understand the factors that influence your credit score.

Your overall credit score is calculated based on the following factors:

• Payment history
• Length of credit history
• Newly opened lines of credit
• Credit mix
• Amount owed

New accounts constitute approximately 10% of your score. If you have opened numerous accounts in a relatively short time, obtaining another loan can lead to a decrease in your credit score. The duration of your credit history accounts for 15% of the score. Securing a new loan can reduce the average age of your credit history, resulting in a negative effect on your score.

Missed payments cause the most significant damage to your credit score. If you miss the due date by a couple of days, it might not have an effect on the score (as long as you manage to stay in contact with the lender). However, forgetting about your financial obligations for weeks or even a month will make the lender report your late payment to one of the credit bureaus.

What Is The Personal Loan Impact On Credit Report?

Does taking out a personal loan hurt your credit? This depends on what type of personal loan you take out and with whom. How you go about repaying your personal loan will also influence its effect on your credit score.

If you formally apply for a personal loan, a hard credit check might get triggered. A hard inquiry is a credit information request performed by the lender. Unlike a soft inquiry, a hard credit check can knock up to about 5 points off your score. The hard inquiry will stay on your report for 2 years, but the good news is that it will affect your score only in the first year.

If you miss a payment and it is reported to one of the credit bureaus, the negative mark will stay on your report for 7 years. If several months pass and you are still unable to pay off the debt, the account can go to collections, and this will cause your score to drop anywhere between 90 and 110 points. That would be the worst possible personal loan impact on your credit report.

How A Personal Loan Affects Your Credit Score Positively

While they can have a negative effect on your score, you can also use a personal loan for credit score improvement. How a personal loan affects your credit score positively depends on your current credit mix. If you don’t have any other personal loans, then you can add something new to your credit mix.

This factor shows how well you’re able to handle different types of debt and makes up 10% of the score. Your credit mix is on point if you have a credit card, a loan, and a retail account. Borrowers looking for how personal loans impact the credit utilization ratio should first look at their credit report to determine if a personal loan can add a new type of credit account.

The best way to improve your score with the help of a personal loan is by making all of your monthly payments on time. Payment history accounts for about 35% of your total score. Many would agree that your payment history is the most crucial factor when it comes to calculating your credit score, so making sure that you stick to that repayment schedule is extremely important.

Debt Consolidation And Credit Score: What You Need To Know

Debt consolidation and your credit score can be linked, but it depends on the type of personal loans you wish to consolidate. Installment credit loans won’t have much of an impact on your credit score when consolidated. However, you can use a personal loan to consolidate credit card debt, which might lower your credit utilization and improve your score.

Credit utilization is the percentage of your available credit that you’re currently using. In the ideal scenario, you would want to keep that number at around 10%, but anything below 30% is considered to be quite good. 

Debt consolidation and credit score can become interconnected. However, you would have to take your time weighing all the pros and cons, as a single missed payment in such a case can quickly turn into a major disaster. Ultimately, how personal loans impact credit utilization ratio will fully depend on you.

Personal Loan Vs Credit Card For Credit Score: What’s The Difference?

With a personal loan, you’ll get a lump sum of money that you will have to repay with fixed monthly payments. A credit card offers you revolving credit. You’ll have ongoing access to funds you can use whenever there is such a need. Your bill will most likely vary based on monthly usage.

We have already discussed in detail a personal loan for credit score improvement. When it comes to credit cards, you’ll build up a history of on-time payments if you pay your bills on time. However, if you have a high balance on your card, your credit utilization ratio will rise, and your score will drop.

When considering a personal loan vs credit card for credit score improvement, it comes down to your own personal situation. Do you already have high credit utilization or want to add new credit accounts? Then, you are better off opting for a personal loan.

What Personal Loans Can You Get In Utah?

If you’ve decided a personal loan is right for your financial situation, Utah Title Loans, Inc. can help with our personal loans. Our professionals are committed to helping you find the most convenient financial solution for your specific case.

Whether your credit score has already been negatively impacted or you haven’t really been given a chance to start building your score, it doesn’t matter; we are ready to consider all credit situations.

The following are the personal loans we offer in Utah:

• Payday loans: A payday advance lets you borrow up to $500 from a future paycheck, pay your financial emergency, and repay the loan with your next paycheck. The required items you need for a payday loan approval are a state-issued photo ID, your most recent pay stub, and a blank check from an active checking account in your name.
• Signature installment loans: You can borrow up to $1,500 with signature installment loans by agreeing to repay the loan in fixed monthly payments. Getting approved requires a state-issued photo ID, a checking account statement in your name, and proof of income.

Getting approved for these personal loans is easy with our simple, fast approval process. You can start online and get approved in person at a Utah store location in less than 30 minutes. If you’re looking for fast financial relief, contact us today for payday loans or signature installment loans in Utah.

Get Personal Loans In Utah Today – Borrow Fast Emergency Cash Today!

Now that you know how a personal loan affects your credit score positively, you can begin the process of getting emergency cash today. Our Utah payday loans and installment loans let you get the money you need regardless of your credit score. Get same-day approval for personal loans and receive your cash within one business day.

Do you need emergency cash today? Don’t wait any longer and fill out our online inquiry form. One of our loan agents will call you to walk you through the fast, efficient process.

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.