Wondering about the impact of personal loans on your credit score? They can indeed have a negative effect—if not handled responsibly. Here are two key ways they can harm your credit:
Multiple Hard Credit Inquiries:
When you apply for a personal loan, lenders typically conduct a hard credit check to assess your creditworthiness. These inquiries are recorded on your credit report and can temporarily lower your credit score. Accumulating too many hard inquiries in a short span may signal to lenders that you’re in urgent need of funds, potentially raising concerns. Additionally, taking on additional debt through a personal loan can increase your overall debt burden, influencing your credit score. Applying for another loan soon after obtaining one can also heighten the risk of rejection due to perceived excessive debt.
Late or Missed Payments:
Your payment history significantly influences your credit score. Any instances of late or missed payments on your personal loan will be reported to credit bureaus, denting your credit score. While a single late payment might be viewed leniently, recurring tardiness can set off alarm bells for lenders, diminishing your chances of future credit approval.
In summary, while personal loans offer financial flexibility, it’s crucial to manage them responsibly to avoid detrimental effects on your credit score.
