The Impact of Personal Loans on Your Credit Score

Are you considering applying for a personal loan from a local credit union in Kingsley, MI,  to consolidate high-interest credit cards or pay for a large purchase? While this unsecured loan can help you meet your current financial needs, you might be curious about how it will impact your credit score. Keep reading to learn more about the effects of personal loans on credit scores.

Personal Loan Sticky Note

Personal Loans Can Have a Positive Impact on Your Score

Many borrowers prefer personal loans over other financial products like credit cards because they have lower interest rates. The lower interest rate combined with a higher credit limit can help you save money by consolidating high-interest credit card balances into one payment that doesn’t charge an insane amount of interest.

But you already know that, right? What you might not know is a personal loan can boost your credit score if you borrow responsibly. Here are some ways to ensure this loan influences your score positively.

Payment History

Did you know that 35% of your FICO credit score comes from your payment history? If you’re trying to boost your score, showing that you make timely payments on a personal loan can improve your score. If you’ve never had a loan before, consider a personal loan instead of a credit card to get a lower interest rate and have a better impact on your FICO score.

Credit Utilization Ratio

The next factor that makes up a big chunk of your credit score is credit utilization. Many people find that their credit score takes a hit because they have several maxed-out credit cards. You want to keep the amount you owe low to avoid a high credit utilization ratio.

If you’re carrying around a lot of credit card debt, a personal loan can help you lower your credit utilization ratio. A word of caution: Once you “pay off” your credit cards and move those balances to a personal loan, don’t max out the cards again. You want to keep your credit utilization ratio to stay below 30% for the biggest credit boost.


Your credit score is also determined by the variety of loan products you have or have had in the past. Applying for a personal loan from a credit union is a way to do this. For example, your credit report might already show a mortgage, a car loan, a credit card, and a student loan. Adding a personal loan adds to the variety and can boost your credit score.

Stay on Track for the Greatest Impact

Whether you apply for a personal loan at a local branch or an online credit union, keep in mind that the positive impact this loan has on your score depends on responsible borrowing. Be careful not to borrow more than you need and always make your payments on time.

Credit Score Report

What about the credit inquiry?

That’s a concern for many people, but credit inquiries on your credit report don’t make up a huge percent. Also, these inquiries fall off after so many months. As long as you don’t apply for several personal loans at once, you shouldn’t worry about the impact on your credit score.

Where do I find the best credit union with the best line of credit in Kalkaska, MI? Check out Forest Area Federal Credit Union to learn more about loan products and current rates.