Personal loans can have both positive and negative impacts on your credit score, depending on how you handle them.
When you first apply for a personal loan, the lender runs what’s known as a hard credit inquiry, which can temporarily lower your score by a few percentage points. However, getting approved for a personal loan can actually improve your credit score. That’s because it will add to your credit mix, which accounts for 10 percent of your FICO score.
Making timely payments on your personal loan can also have a positive impact on your credit, as payment history accounts for 35 percent of your FICO score. That said, if you miss your due date or if you default on your loan, your credit score can drop significantly.
To avoid this, make sure you only borrow what you can afford. If you’re struggling to make payments due to an unforeseen circumstance, contact your lender, as they can provide you with some short-term solutions, such as forbearance or a reduced monthly bill, to help you stay current while you get back on track.
Source: thesimpledollar.com