Do personal loans affect my credit report?

Personal loans have a direct and lasting impact on your credit report, beginning from the moment you apply. When you submit a personal loan application the lender then initiates a hard inquiry on your credit profile. This hard inquiry is recorded by credit bureaus and can cause a slight, temporary dip in your credit score. Typically, a hard inquiry remains visible on your credit report for up to two years, but its effect on your score usually fades within a year.

Once your loan is approved and disbursed, it is added as a new credit account on your report. This increases your overall debt and is factored into your credit utilisation ratio and total outstanding liabilities. The way you manage your personal loan from this point forward plays a significant role in shaping your credit score.

Timely repayment of EMIs is critical. Each on-time payment is reported to the credit bureaus which helps to build a positive payment history needed for your credit score calculation. Over time, consistent repayments can improve your score, enhance your creditworthiness, and make you eligible for better loan terms in the future.

Missed or late payments are reported as well and can significantly damage your score. Even a single late payment can have a substantial negative impact, especially if your credit score was high to begin with. Such delinquencies can remain on your report for up to seven years.
Taking a personal loan can diversify your credit mix which may be beneficial for your score if you previously only had credit cards or other forms of revolving credit. However, accumulating multiple loans or high outstanding balances may lower your score by increasing your total debt burden.