We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

How do Loans Affect Credit Score?

By Bethany Keene
Updated Jan 21, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Loans affect credit score in a myriad of positive and negative ways, beginning with the first time an application for a loan is completed. Each time an individual applies for a loan, a credit inquiry is added to a credit report, which can lower one's credit score. Of course, loans affect credit score in a positive way as well, if one makes payments on time and pays off the loan.

As mentioned above, each loan application shows up as a credit inquiry on a credit report, which does have a negative impact on credit scores. When rate shopping for loans, such as a for an auto loan or a mortgage, it is a good idea to do all the rate shopping within a two-week period. This is because the credit reporting agencies account for rate shopping in this way, and will consider all inquiries within the two week period as a single inquiry, rather than a number of different ones.

Loans affect credit score in another way, too. Each loan that an individual takes out is considered an obligation on a credit report. A high number of loans will make an individual seem like a risk to a lender, and will make it less likely that a lender will approve another loan. A high number of loans will not necessarily negatively impact a credit score, as long as the payments are current, but they do make a borrower seem like more of a risk.

Loans affect credit score in a positive way as well. If a borrower takes out a loan, or a few loans, then regularly makes the scheduled payment on a loan without ever missing a payment or being late, this will steadily improve one's credit score. Once the loan is paid off, it will remain on the credit report with a statement that says the borrower paid the debt as agreed. It is not necessary to make more than the minimum payment on a loan, but this can simply help to pay off a debt sooner.

It is best to have a varied amount of loans on a credit report. A combination of revolving debt, such as regular credit cards and store credit cards, as well as loans with a standard monthly payment, illustrate one's ability to manage different types of debt successfully. Loans affect credit score to a significant degree, even though they make up only one portion of one's credit score.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.