Credible takeaways
- Applying for a new loan requires a hard inquiry that can hurt your credit score.
- Most people only lose a maximum of five points from a single new hard credit inquiry.
- Hard credit inquiries stay on your report for two years, but only tend to affect your score for a year.
While applying for new credit can cause damage to your credit score, the impact is typically small and easy to recover from. Multiple hard inquiries over a short period of time, however, can have a compounding effect. That’s why it’s best to gauge your options by prequalifying for a loan, if possible, before proceeding to a formal application.
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Applying for a loan and how it affects your credit score
When you apply for a loan, lenders will perform a hard credit inquiry to assess how likely you are to repay the amount on time. While hard credit inquiries do hurt your credit score, the impact is typically small. A single new hard inquiry causes most people’s scores to drop by five or fewer points, according to FICO.
However, the impact on your score will depend on the length and depth of your credit history. For example, if you only have one credit account that’s six months old, you may see a larger drop than someone with eight credit accounts and a 10-year credit history.
Fast fact
Hard credit inquiries stay on your credit report for two years and impact your FICO score for one year.
How applying for a loan helps
While applying for a new loan will often cause your credit score to drop by a few points, it could also be a step toward building a strong credit profile. FICO, for example, uses five factors to calculate its credit scores. The “new credit” category that considers hard inquiries only accounts for 10% of your score. The other 90% depends on how you manage your credit accounts over time.
Here’s a look at the four other FICO score categories and how getting a loan can impact them:
- Payment history (35%): The most important factor in your credit score is your payment history. This category looks at if and when you make your payments. On-time payments will help to improve your score over time.
- Amounts owed (30%): As you pay down an installment loan, it will reduce the perceived risk you present to lenders and help show that you can be trusted to manage and repay the amount borrowed.
- Length of credit history (15%): A loan with a term of several years can help to lengthen your credit history and show responsible behavior over a long period.
- Credit mix (10%): Creditors like to see that you have the ability to successfully manage different types of credit, such as revolving credit or installment loans. A loan would add an installment credit account to your credit profile.
Making your loan payments as agreed can help you recover from the small initial dip in your score and improve it in the long run.
Keep Reading: How Does a Personal Loan Affect Your Credit Score?
How applying for a loan hurts
You’ll likely see a small decrease in your credit score once you apply for a loan. If you allow multiple lenders to process hard inquiries, it can cause more significant damage. To keep your perceived risk to lenders low and damage to your credit score at a minimum, you’ll want to be very careful about the hard inquiries you allow.
Tip
Shop around first with lenders that allow you to prequalify with a soft credit check, which won’t affect your credit, before proceeding to a formal application that will result in a hard inquiry.
Comparing interest rates, terms, and other loan factors is called rate shopping. Rate shopping helps you make an informed decision, but it can result in multiple hard credit inquiries, especially if done over a long period of time. Fortunately, both VantageScore and FICO allow for multiple inquiries to be made within a certain timeframe, but only count as a single inquiry.
Older versions of the FICO scoring model, like VantageScore, count inquiries made for the same type of loan during a 14-day time period as a single credit inquiry, while newer FICO models count inquiries made within 45 days as a single inquiry.
When looking for a loan, it's best to focus your search and confine rate shopping to the same two-week period to avoid hurting your credit.
Prequalifying for a loan is a better alternative as it's a soft credit pull, which won't affect your credit. You can get a peek into what a lender might offer you before formally applying.
What to consider before applying
If you’re thinking about applying for a loan, here are a few things to consider.
- Check your credit: Check your credit reports to ensure everything is accurate. Then, determine if you are in a good place to begin your loan search or if you should work on building your credit before applying. You can visit AnnualCreditReport.com for a free credit report.
- Assess your budget: If you end up unable to keep up with your loan payments, it can cause a great deal of damage to your credit for as long as seven years. So check your budget to find out how much of your income you are comfortable allotting to a loan payment.
- All lenders aren’t the same: Lenders vary greatly in the loan amounts, terms, annual percentage rates (APRs), and eligibility requirements they offer. If you’re turned down by one, it doesn’t mean you’ll be turned down by them all. Look for lenders that are a good match for your needs and situation.
Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Read full reviewOverview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Read full reviewOverview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
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Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
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LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
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SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
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Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
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Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
Read full reviewOverview
It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
Read full reviewOverview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Read full reviewOverview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
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BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Read full reviewFees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Read full reviewOverview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Read full reviewHow to apply for a personal loan
Follow these steps to apply for a personal loan:
- Shop around and prequalify: To minimize hard inquiries and credit score damage, you can prequalify with some lenders before applying to get an estimate of the rates, loan amounts, and terms you may be eligible for. Prequalification is not an offer of credit, and your final rate may be different.
- Compare quotes: Compare quotes side-by-side to find the best fit for your situation. Consider the APR — which takes into account the interest rate and any upfront fees — repayment terms, loan amounts, and eligibility requirements.
- Complete and submit a full application: Complete the full application with your lender of choice and allow a hard inquiry.
- Review the loan contract: If approved, you can usually sign the contract online and have the funds sent to your bank account by the same or next business day, though this varies by lender and can take longer. Or, if not satisfied, you could apply with a different lender.
Check Out: How and Where To Get a 500 Credit Score Loan
Does applying for a loan hurt credit FAQ
What is the difference between a hard inquiry and a soft inquiry?
Hard credit inquiries occur when you formally request a new line of credit and the creditor contacts one or more credit bureaus to pull your credit file in order to make an application decision. Soft credit inquiries occur when you or another party requests your credit information for reasons other than approving an application. While hard inquiries show up on your credit reports for two years and can negatively impact your credit scores for one year, soft inquiries won’t impact your credit.
Does applying for multiple loans affect your credit score?
If you apply for multiple personal loans or credit cards, each one could hurt your credit score individually, or they could be all counted as a single hard credit inquiry. Depending on the credit scoring model used, multiple hard credit inquiries with a 14-day or 45-day window may count as a single hard credit inquiry, as long as they're for the same type of loan. This is to allow consumers to rate shop in order to compare offers and get the best rate.
Can I minimize the impact of loan applications on my credit score?
You can minimize the impact of loan applications by limiting the number of hard credit inquiries you allow. But if you’re rate shopping, multiple hard inquiries may be counted as one if they occur within a certain time frame, such as 14 to 45 days. The time frame varies by the credit score model a lender uses.
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Meet the expert:
Jessica Walrack
Jessica Walrack is a freelance finance writer and journalist with over a decade of experience. During that time, she’s written hundreds of articles about loans, insurance, banking, mortgages, credit cards, budgeting, and taxes for well-known publications including CBS News MoneyWatch, USA Today, US News and World, Investopedia, and The Balance Money.