As discussed above, a hard inquiry can cause your credit scores to drop slightly when you apply for new credit, and scores typically dip a few more points when you are issued a new loan.
Your credit score can dip a few points when you formally apply for a personal loan, but missed payments can cause a more significant drop. Getting a personal loan will also increase the amount of debt you owe, which is one of the factors that make up your credit score.
Applying for a personal loan can temporarily lower your credit scores by a few points. But the overall effect of the loan on your credit scores largely depends on how you manage the loan. If you make consistent, on-time payments, for example, getting a personal loan could help you improve your credit scores over time.
Yes, this is normal. This happens because of how your credit score is calculated. How many open lines of credit you have open plays a large part in that calculation, and because you payed off those loans, thus closing those lines of credit, the calculation gets affected in such a way that your score goes down.
A FICO® Score of 650 places you within a population of consumers whose credit may be seen as Fair. Your 650 FICO® Score is lower than the average U.S. credit score. Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future.
A personal loan can stay on your credit report anywhere from a few years to up to a decade, depending on how you manage your debt. Missed payments may remain on your report for seven years, while bankruptcies and closed accounts that you've paid in full could stay on your report for a decade.
For a score with a range of 300 to 850, a credit score of 670 to 739 is considered good. Credit scores of 740 and above are very good while 800 and higher are excellent.
A hard credit inquiry could lower your credit score by as much as 10 points, though in many cases, the damage probably won't be that significant. As FICO explains, “For most people, one additional credit inquiry will take less than five points off their FICO Scores.”
Payment history has the biggest impact on your score, followed by the amounts owed on your debt accounts and the length of your credit history. There are other elements, too, that could affect your credit scores, such as inaccurate information on your credit report.
Key Takeaways
Paying off a loan may lower your credit score, but if you practice good credit habits the effect will be minimal. Paying off a loan early can reduce your debt-to-income ratio, which can benefit your credit. Your credit score is based on a number of factors, like payment history and credit utilization.
Cash advance apps, “buy now, pay later” companies and high-interest installment loans all let you borrow money without a hard credit inquiry.
There's no such thing as “too many” hard credit inquiries, but multiple applications for new credit accounts within a short time frame may point to a risky borrower. Rate shopping for a particular loan, however, may be treated as a single inquiry and have minimal impact on your creditworthiness.
If you get approved for a personal loan, you do not need to accept it. However, because applying for personal loans has an impact on your credit, it's best to shop around and compare lender preapprovals to avoid applying for a personal loan you won't end up accepting.
If you're making all your repayments on time, having a variety shows lenders that you can manage different types of credit accounts well. A personal loan could add to your mix of credit accounts and potentially boost your score, if you always make your payments on time.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
What is the highest credit score possible? To start off: No, it's not possible to have a 900 credit score in the United States. In some countries that use other models, like Canada, people could have a score of 900. The current scoring models in the U.S. have a maximum of 850.
When you apply for a personal loan, lenders will run a hard credit check to access your credit report and history. Hard credit checks temporarily lower your credit score by as much as 10 points, but if you have excellent credit, applying for a loan may only cause your score to drop by five points or fewer.
Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit score may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.
While a hard inquiry for a personal loan can trigger your credit scores to drop slightly (usually less than five points), your scores are likely to recover within a few months to one year—and the impact will decrease with time as you continue to make timely bill payments.
Even better, just over 1 in 5 people (21.2%) have an exceptional FICO credit score of 800 or above, all but guaranteeing access to the best products and interest rates.
Generally, it takes around 4-12 months to reach the point where you can apply for a loan. It will take a few months to get to 750 if your score is currently somewhere between 650 and 700.