Does Applying for Multiple Loans Impact Your Credit Score?

Whether you’re applying for a personal loan or filling out multiple applications for a mortgage, a student loan, or financing at a car dealership, one thing’s for sure: You’re empowering lenders to obtain a copy of your credit report from a credit bureau. But does applying for loans affect your credit score? In a word: Yes. Here’s what else you need to know about how applying for a personal loan can affect your credit score. 

While the circumstances differ from person to person, applying for a personal loan will generally take just five to 10 points – or less – off your FICO score, the most common credit scoring model.^1,2 

This is because whenever you actively apply for a loan, credit card, credit line increase, or financing at a car dealership, lenders contact credit reporting agencies (Equifax, Experian, or TransUnion) for a credit report. This action is called a hard credit inquiry or hard pull. And while FICO scores only consider hard pulls from the last 12 months, those inquiries stay on your credit report for two years.³ 

Soft credit inquiries, or soft pulls, on the other hand, are more routine, can occur without your consent, and aren’t typically aligned with a loan application – like when you get preapproved credit offers or your credit card issuer increases your credit limit. Soft pulls don’t affect your credit scores. For more on credit inquiries, read “Soft vs Hard Credit Inquires: What’s the Difference?” 

People use personal loans for everything from consolidating credit card debt and paying off hefty medical bills to financing home improvement projects – and typically with far lower interest than using a credit card. Like all financial information, personal loans are factored into your credit score and appear on your credit report. And having a personal loan might even boost your score, even though the initial application will cause a dip. For example:

• If you’re responsible and make timely installment payments to the lender, the loan can help boost your credit score.
• Adding a personal loan increases your credit mix, which makes up 10% of your FICO score. Having a variety of loans and credit cards can increase your score.

However, a personal loan can also negatively affect your credit score if you miss payments, since payment history is a major factor in determining your credit score. And you might see a slight dip in your score once you pay your loan off in full. Even though it’s good to pay off debt, paying off a loan can alter your credit mix.

Rate-shopping and comparing offers for a single loan type can ultimately have a positive outcome. Since you’re investing time in finding the best rates, terms, and options for your budget, you’ll probably pay less at the end of the day. But what about all those hard inquiries? 

The good news is that rate-shopping will have only a nominal effect on your score if you bunch your research together within a short window of time, typically 14 to 45 days depending on the lender. When lenders for credit types like auto, mortgage, or student loans make numerous hard inquiries in that short window, it usually counts as a single inquiry – as long as it’s for one type of loan.⁴ In other words, applying for both a student loan and a car loan within a two-week period will count as two hard inquiries. 

What’s more, if you apply for more loans after the 14- to 45-day period is up, it can actually hurt your credit score. Multiple applications outside a short rate-shopping period may indicate to the lender that you’re a risky borrower. Thus, it may be beneficial to do all of your rate-shopping within 14 days to minimize potential impact of hard inquiries.

It’s also important to note that the credit score benefits of rate-shopping don’t apply to credit card applications. Every credit card application will trigger its own hard inquiry, and again, multiple credit card applications can negatively impact your credit score.