How does a personal loan affect my credit score?

A personal loan affects your credit score in several ways. When you first apply, the lender does a hard inquiry, which can temporarily lower your score by a few points. Taking on the loan also increases your total debt, which may impact your score initially. However, a personal loan adds an installment account to your credit mix, which can be a positive factor. Over time, making consistent on-time payments is the biggest benefit, as payment history is the most influential factor in your credit score. If you use the loan to pay off high-interest credit card debt, it can also lower your credit utilization ratio, which typically gives your score a meaningful boost. Missing payments, however, will significantly damage your score.