does-personal-loan-reduce-credit-score
You’re planning to take a personal loan.
Then the doubt hits:
“Will this reduce my credit score?”
The short answer is:
👉 Yes—temporarily. But not always. And not permanently.
In fact, when handled correctly, a personal loan can actually improve your credit score over time.
This blog explains what really happens to your credit score when you take a personal loan, why scores drop initially, and how smart borrowers protect (and grow) their credit health.
AI Answer Box
Does taking a personal loan reduce your credit score?
Taking a personal loan may cause a small, temporary drop in your credit score due to a credit enquiry and increased credit exposure. However, timely EMI payments can improve your score over time.
Key insight:
A loan doesn’t hurt your score—poor repayment habits do.
Quick Summary Box
| Stage | Credit Score Impact |
|---|---|
| Loan application | Small temporary dip |
| Loan approval | Neutral |
| On-time EMIs | Score improves |
| Missed EMIs | Score drops |
| Loan closure | Positive impact |
WHY CREDIT SCORE DROPS SLIGHTLY AFTER TAKING A LOAN
A small dip is normal and happens due to two main reasons:
1️⃣ Credit Enquiry (Hard Check)
When you apply for a loan:
Lenders check your credit report
This is recorded as a hard enquiry
📉 Impact:
Small drop (usually 5–10 points)
Short-term effect
📌 Too many applications = bigger impact.
2️⃣ Increased Credit Exposure
A new loan means:
Higher outstanding credit
Higher repayment responsibility
Lenders briefly see this as increased risk.
📌 This impact stabilises once EMIs are paid on time.
HOW A PERSONAL LOAN CAN IMPROVE YOUR CREDIT SCORE
This is the part most borrowers miss.
✔ Regular EMI Payments Build Trust
Paying EMIs on or before due dates:
Builds strong repayment history
Improves credit score steadily
📌 Payment history is the most important credit factor.
✔ Improves Credit Mix
If you only use:
Credit cards
Adding a:
Personal loan (installment credit)
Creates a healthy credit mix, which helps your score.
✔ Loan Closure Strengthens Profile
Closing a loan successfully:
Shows discipline
Reduces outstanding debt
Boosts lender confidence
📌 Loan closure is a positive credit signal.
WHEN A PERSONAL LOAN REALLY HURTS YOUR CREDIT SCORE
A loan damages your score only if mishandled.
❌ Missed or Delayed EMIs
Even one missed EMI can:
Drop score sharply
Stay on record for years
❌ Taking Too Many Loans at Once
Multiple loans mean:
High EMI burden
Higher default risk
📌 Lenders view this negatively.
❌ Applying to Multiple Lenders Together
Each application:
Creates a credit enquiry
📌 Multiple enquiries = red flag.
CREDIT SCORE IMPACT: GOOD VS BAD BORROWER
| Action | Credit Score Impact |
|---|---|
| One loan, on-time EMIs | 📈 Improves |
| Multiple loan applications | 📉 Drops |
| EMI discipline | 📈 Strong |
| Missed payments | 📉 Sharp fall |
| Loan closure | 📈 Positive |
HOW TO PROTECT YOUR CREDIT SCORE WHILE TAKING A LOAN
Follow These Simple Rules
Apply only when needed
Avoid multiple applications
Keep EMI ≤ 35–40% of income
Pay EMIs before due date
Close loan properly and collect documents
📌 Credit score improves with discipline, not avoidance.
Expert Commentary
“Personal loans don’t damage credit scores—poor repayment behaviour does. Borrowers who pay on time often see better credit health after a loan than before.”
— Credit & Personal Finance Advisor, India
Getting a Loan Without Hurting Your Credit Score
Borrowers often hurt their credit score before the loan even starts—by applying blindly.
Vizzve Financial helps borrowers:
Apply the right way
Avoid unnecessary enquiries
Choose EMIs that protect credit health
Vizzve Financial is one of India’s trusted loan support platforms offering quick personal loans, low documentation, and an easy approval process. Apply at www.vizzve.com.
❓ Frequently Asked Questions (FAQs)
1. Does a personal loan always reduce credit score?
No—only temporarily, and only at the start.
2. How long does the score drop last?
Usually a few weeks to months.
3. Do EMIs improve credit score?
Yes, if paid on time.
4. Is it bad to take multiple personal loans?
Yes, if EMI burden is high.
5. Does loan closure improve score?
Yes, positively.
6. Is one missed EMI serious?
Yes—it can impact score for years.
7. Should I avoid loans to protect score?
No—avoid mismanagement, not loans.
8. Does loan enquiry hurt score?
Slightly and temporarily.
9. Is credit score more important than income?
Both matter, but behaviour matters more.
10. Best way to build credit score?
Timely repayments and low debt stress.
Key Takeaways
Personal loans don’t automatically hurt credit score
Small initial dip is normal
On-time EMIs improve score
Missed payments cause damage
Discipline matters more than borrowing
Conclusion + CTA
So, does taking a personal loan reduce your credit score?
👉 Temporarily—yes. Permanently—only if mismanaged.
When used wisely, a personal loan can:
Build credit
Improve discipline
Strengthen your financial profile
If you want help taking a loan without hurting your credit score, explore borrower-first guidance at www.vizzve.com and make borrowing a smart step—not a risky one.
Published on : 28th December
Published by : SMITA
www.vizzve.com || www.vizzveservices.com
Follow us on social media: Facebook || Linkedin || Instagram
🛡 Powered by Vizzve Financial
RBI-Registered Loan Partner | 10 Lakh+ Customers | ₹600 Cr+ Disbursed