How is my credit score affected by applying for a personal loan?

When you apply for a personal loan, the financial institution will check your credit report as part of their assessment. This process, known as a hard inquiry, can cause your credit score to drop slightly in the short term. Usually, this decrease is minor and your score can recover within a few months, provided there are no further hard inquiries or negative marks.

After your loan application is approved and you start making regular repayments without delay, over time, consistent and timely payments can help improve your credit score, as they show lenders that you are reliable with your financial commitments. Additionally, having a personal loan in your credit profile can modify your credit mix which is considered in positive credit scoring.

Adversely, missing payments or paying late can harm your credit score and make it more difficult to access credit in the future. It is also wise to avoid submitting several loan applications in a short time, as each hard inquiry can add up and lead to a more noticeable drop in your score. To protect your credit health, borrow only what you need and make sure that you can comfortably manage the repayments.