Are personal loans bad for your credit?

Personal loans are not bad for your credit score in the long run if you pay the bills on time. The hard inquiry from a personal loan application may cause your score to fall a bit in the short-term, however, and the loan itself will increase your debt load initially. Positive information from on-time bill payments should lead to credit score gains before too long, though.

You can see exactly how your credit may be impacted by a personal loan by using the free credit simulator on WalletHub.

How Personal Loans Can Be Bad for Your Credit

• They cause a hard credit inquiry.

  In almost all cases, your credit score will drop slightly when you first apply for a loan because lenders will do a "hard pull" of your credit. Your score will likely drop 5 to 10 points, but this can be fixed by a few months of on-time payments.

• They increase your debt load.

  Once you accept a personal loan offer, you will automatically have a higher debt load, which can cause your credit score to take a hit in the short-term. The more debt you have, the riskier it is for banks and credit unions to lend to you.

• You can damage your score by not making payments on time or defaulting.

  Lenders report payment information to credit bureaus every month. If you don't make your payments on time, they will report negative information to the bureaus, which will drop your score.

Ultimately, if you pay on time, a personal loan should end up helping your credit score in the long run. If you're interested in applying, you can use the free pre-qualification tool on WalletHub to see which lenders may approve you, as well as what rates you might get. This tool does a soft pull of your credit, so it won't damage your score.