Well, a personal loan can influence your credit score in a number of ways. Making payments on time can boost your score because it shows lenders you’re reliable. However, missing payments or taking on more than you can afford can have the opposite effect.
Knowing how personal loans can impact your credit will help you stay in control of your financial health. It might even help you secure better rates down the road too.
A personal loan allows you to borrow a set amount of money from a bank or lender and pay it back in fixed monthly instalments, usually with interest.
They can be secured or unsecured, but unlike a mortgage or car loan, personal loans aren't tied to a specific purchase or asset. You can use a personal loan for car finance if you wish, which is exactly the type of loan we specialise in here at Oodle.
As we’ve mentioned, while direct deposit is the most common method, there are other ways to receive your personal loan funds.
Credit scores are a reflection of your financial habits. They’re calculated based on several factors.
Payment history
Lenders want to know if you pay your bills on time. Missed payments, defaults or bankruptcies can significantly lower your score, whereas consistently making payments on time shows you're a reliable borrower, which boosts your score.Lenders want to know if you pay your bills on time. Missed payments, defaults or bankruptcies can significantly lower your score, whereas consistently making payments on time shows you're a reliable borrower, which boosts your score.
Credit utilisation
This measures how much of your available credit you're using. Keeping your credit utilisation below 30% is ideal. High usage can indicate you're over-reliant on credit, which can negatively impact your score, whereas lower usage suggests better credit management.
Length of credit history
This considers how long your credit accounts have been open. Longer histories are better, as they provide more data on your borrowing behaviour. Even if you don’t use old accounts, keeping them open can help improve this part of your score.
New credit
Keep track of how many new accounts you’ve recently opened. Opening multiple new accounts in a short period can lower your score, as it might suggest financial instability or increased risk. Each application can also cause a small, temporary drop in your score.
Credit mix
A healthy credit mix, such as credit cards, instalment loans and mortgages, can positively impact your score. It shows lenders you can manage different types of credit responsibly, demonstrating financial versatility.
Maintaining a good credit score is important because it affects your ability to get loans, credit cards and even good rates on insurance. A healthy score can mean better financial opportunities and even lower interest rates, helping you to keep more of your money in your pocket!
Taking out a personal loan can impact your credit score in a few ways. When you apply, the lender performs a hard credit check on your credit report, which might temporarily lower your score a little.
However, making regular, on-time payments on the loan can boost your score over time by showing you're low-risk and responsible with credit. On the flip side, missing payments can hurt your score.
Additionally, a personal loan could improve your credit mix, which is good for your score. So, while there might be a small initial dip, a personal loan can positively impact your credit if managed well.
Making payments on time for your personal loan is really important for your credit score. Each timely payment boosts your score by showing lenders you’re reliable.
Missing or making late payments can have the opposite effect, negatively impacting your score and making you look like more of a risk to potential future lenders. So, keep up with those payments to keep your credit score in great shape.
New Credit
When you apply for a personal loan, it shows up as a new credit account on your credit report. This can be a good thing as it adds to your credit mix, but remember to be cautious. Opening too many new accounts in a short period can actually lower your credit score.
Lenders might see this as a sign that you’re taking on too much debt too quickly, which can make you look like more of a risk. So, while a personal loan can boost your creditworthiness if managed well, try to plan ahead and space out new credit applications to keep your score strong and healthy.
Looking to use your credit score for a new car?
If you have a good credit score and are looking to make use of it by getting a new car, we’re here to help your car finance journey go as smoothly and stress-free as possible. With competitive rates, flexible terms, and a friendly team ready to help, Oodle is the smart choice for car finance.
Whether you’re upgrading or buying your first car, we’ve got you covered. Get a quote today (representative APR 16.9%) and drive away with confidence.
