How does a personal loan affect your credit score?

A personal loan affects your credit score in several ways. When you first apply, the lender performs a hard inquiry, which can temporarily lower your score by a few points. Taking on the loan also increases your total debt, which may negatively impact your score initially. However, a personal loan can help your credit over time if you make consistent on-time payments, since payment history is the biggest factor in your score. It can also improve your credit mix by adding an installment loan to your profile. Additionally, if you use a personal loan to pay off credit card debt, it can lower your credit utilization ratio, which often gives your score a meaningful boost.