When you submit an application for a personal loan, your credit score changes immediately. The exact movement up or down depends on whether you check rates, formally apply, or manage your new debt over time [1].
The Immediate Drop from Hard Inquiries
The minute you submit a formal loan application, the lender performs a hard credit inquiry to review your file [2]. This hard check usually drops your credit score by fewer than five points [2]. The inquiry stays on your credit report for up to two years, but scoring models like FICO usually stop factoring it in after twelve months [2]. If you check whether you pre-qualify before applying, lenders run a soft inquiry instead, which does not change your score at all [2].
If you apply with several different personal loan lenders within a short timeframe, usually 14 to 45 days, scoring algorithms group those queries together and count them as a single hard inquiry [1]. This window lets you compare interest rates without repeatedly knocking points off your score [1].
Opening a New Loan Account
Once a lender approves your application and transfers the money, a new instalment account appears on your credit report [3]. This updates three main parts of your credit score:
- Average Age of Accounts: Adding a new account reduces the average age of your credit history, which makes up 15% of your FICO score [3, 4]. A shorter average age can drop your score by a few extra points [2].
- Credit Mix: FICO reserves 10% of your score for the types of credit you manage [3]. If you currently hold only credit cards, adding an instalment loan balances your file and improves this category over time [1].
- Total Debt Balance: Adding a new loan increases your total debt load [1]. Since amounts owed account for 30% of your FICO score, carrying a large new balance can keep your score slightly lower until you pay down the principal [1, 3].
Paying Off High-Interest Credit Cards
Using a personal loan to consolidate credit card debt often raises your score within one to two months [1]. Credit card balances count directly toward your credit utilisation ratio, which measures how much of your revolving credit limits you use [1, 4]. Instalment loans do not factor into your revolving credit utilisation ratio [4]. If you pay off $10,000 in credit card balances with a $10,000 personal loan, your revolving credit utilisation drops to 0%. This drop often leads to a quick increase in your score [4].
Long-Term Impact on Payment History
Payment history is the single largest component of your credit score, accounting for 35% of the total calculation [3, 4]. Making every monthly payment on time builds a steady record of positive history [4]. On the other hand, missing even one payment by 30 days or more inflicts heavy damage that stays on your report for up to seven years [2].
Sources
[1] Experian, “How Does a Personal Loan Affect Your Credit Score?”, Experian, July 30, 2026, https://www.experian.com/blogs/ask-experian/how-does-a-personal-loan-impact-your-credit/
[2] Experian, “How Long Do Hard Inquiries Stay on Your Credit Report?”, Experian, December 12, 2025, https://www.experian.com/blogs/ask-experian/how-long-do-hard-inquiries-stay-on-your-credit-report/
[3] MoneyLion, “Do Personal Loans Hurt Your Credit? What You Should Know”, MoneyLion, July 22, 2026, https://www.moneylion.com/learn/personal-loans/basics/do-personal-loans-hurt-your-credit
[4] Experian, “Can a Personal Loan Help My Credit Score?”, Experian, August 04, 2026, https://www.experian.com/blogs/ask-experian/can-a-personal-help-my-credit-score/