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Is Taking Out a Personal Loan Worth the Hit On Your Credit Score?

You may be contemplating a personal loan if you want to make a large purchase, consolidate high-interest debt, or need cash immediately. You may be contemplating a personal loan if you want to make a large purchase, consolidate high-interest debt, or need cash immediately. If you're thinking about getting a personal loan, bear in mind that it might have a significant impact on your credit score, depending on how you manage the loan.


However, it isn't easy to forecast how it may affect your credit score. This is because there are several credit scoring models available from organizations such as FICO® and VantageScore®. It also relies on your financial state. In general, a personal loan may either improve or hurt your credit score. Continue reading to find out how.


The Positive Effects of a Personal Loan on Your Credit Score


Taking out a personal loan might help you improve your credit mix. Your credit mix refers to the number of credit account types you may have, such as credit cards, loans, mortgages, and so on, and it accounts for 10% of your credit score.


While having one of each account type is not required, having a range of accounts helps demonstrate to lenders that you can handle various types of credit.


Furthermore, making on-time payments on your personal loans helps develop a good payment history, which can boost your credit score. (The goal is to ensure that you can make all of your loan payments on time and in full each month.)


The Negative Effects of a Personal Loan on Your Credit Score


A hard inquiry might result from a personal loan application. This happens when a lender examines your credit record as part of their loan application screening process. A hard inquiry can potentially lower your credit score and stay on your credit record for up to two years. However, the extent to which your scores are impacted depends on your financial state.


Too many queries on your credit record, especially in a short period, may also have a negative effect, according to the Consumer Financial Protection Bureau (CFPB). Furthermore, if your credit score reveals repeated credit applications in a short period, lenders may think your financial capacity is unstable or unreliable.


Check your credit reports and scores before applying to avoid any unnecessary credit inquiries. Checking your credit reports and scores, as the CFPB suggests, may give you a better indication of whether you'll be accepted. In general, the higher your credit score, the more likely you will be approved.


Is a Personal Loan Worth the Hit on Your Credit Score?


Yes, a personal loan is worth it as long as you make the payments on time. In fact, one year after applying for a loan, the application will no longer impact your credit score. After two years, the credit application is completely removed from your credit record. Meanwhile, the advantages of having a more excellent payment history and lower credit use will improve your credit score for a long time. Consider it a short-term sacrifice for a long-term benefit.


Conclusion


Personal loans should not be utilized to spend more than what you can afford. On the other hand, a personal loan might be a wise financial decision if it helps you avoid a higher APR on a credit card or consolidate debt to decrease your monthly payment and improve your credit score.


Magnolia Finance believes that loans shouldn't take too long to process and approve. We understand how important it is to have the means to get cash when you're low on funds. That's why we offer some of the best personal loans in Memphis, TN, that involve hassle-free approvals in no time. Contact us today to apply for a loan!



However, it isn't easy to forecast how it may affect your credit score. This is because there are several credit scoring models available from organizations such as FICO® and VantageScore®. It also relies on your financial state. In general, a personal loan may either improve or hurt your credit score. Continue reading to find out how.


The Positive Effects of a Personal Loan on Your Credit Score


Taking out a personal loan might help you improve your credit mix. Your credit mix refers to the number of credit account types you may have, such as credit cards, loans, mortgages, and so on, and it accounts for 10% of your credit score.


While having one of each account type is not required, having a range of accounts helps demonstrate to lenders that you can handle various types of credit.


Furthermore, making on-time payments on your personal loans helps develop a good payment history, which can boost your credit score. (The goal is to ensure that you can make all of your loan payments on time and in full each month.)


The Negative Effects of a Personal Loan on Your Credit Score


A hard inquiry might result from a personal loan application. This happens when a lender examines your credit record as part of their loan application screening process. A hard inquiry can potentially lower your credit score and stay on your credit record for up to two years. However, the extent to which your scores are impacted depends on your financial state.


Too many queries on your credit record, especially in a short period, may also have a negative effect, according to the Consumer Financial Protection Bureau (CFPB). Furthermore, if your credit score reveals repeated credit applications in a short period, lenders may think your financial capacity is unstable or unreliable.


Check your credit reports and scores before applying to avoid any unnecessary credit inquiries. Checking your credit reports and scores, as the CFPB suggests, may give you a better indication of whether you'll be accepted. In general, the higher your credit score, the more likely you will be approved.


Is a Personal Loan Worth the Hit on Your Credit Score?


Yes, a personal loan is worth it as long as you make the payments on time. In fact, one year after applying for a loan, the application will no longer impact your credit score. After two years, the credit application is completely removed from your credit record. Meanwhile, the advantages of having a more excellent payment history and lower credit use will improve your credit score for a long time. Consider it a short-term sacrifice for a long-term benefit.


Conclusion


Personal loans should not be utilized to spend more than what you can afford. On the other hand, a personal loan might be a wise financial decision if it helps you avoid a higher APR on a credit card or consolidate debt to decrease your monthly payment and improve your credit score.


Magnolia Finance believes that loans shouldn't take too long to process and approve. We understand how important it is to have the means to get cash when you're low on funds. That's why we offer some of the best personal loans in Memphis, TN, that involve hassle-free approvals in no time. Contact us today to apply for a loan!


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