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Does applying for a personal loan affect my credit score?

30 August 2022
• 3 minute read
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A personal loan can help you fund a special purchase such as a new car, holiday or wedding. It can also be a necessary shot of cash if something comes up; or if you’re looking to consolidate existing debts.

At this point, you might be wondering if applying for a personal loan will hurt your credit rating. It’s a great question to ask, especially as your credit score is assessed each time you apply for a personal loan, home loan or a credit card.

Personal loans can affect your credit score in a few different ways, both positively and negatively. Here's what you need to know before you apply.

Unsure what a credit score is?

Your credit score is a number which indicates how likely you are to repay a loan. Credit scores are based on a combination of factors such as your credit history (e.g., how you’ve managed previous credit repayments), your credit profile (e.g., the age of your credit file), and how many and what types of credit applications you’ve made in the past.

The way in which credit scores are categorised varies between financial institutions. Great Southern Bank uses four credit score brackets. These are excellent, very good, good, or average. If you’ve never taken out a loan or had a credit card, your score will be categorised as neutral as you are yet to build a credit history.

It pays to know your credit score

You can check your credit score at any time. Some personal loans offer a lower interest rate to customers with a higher credit score, which can equal some serious savings.

It’s worth noting that the way in which your score is calculated can differ between credit reporting bodies. It’s also possible that they have varying amounts of information about you, which can result in different scores.

If you already know your credit score could be better, hope is not lost. It’s possible to build it up again.

How a personal loan application affects your credit score

When you apply for a personal loan, your ability to repay the loan is assessed. Several things are considered including your income, the loan amount, and your credit score.

To check your credit score, the bank needs to access your credit report. When a request for access is made, your score is temporarily lowered. This slight dip in your credit score is nothing to worry about as it will bounce back over time.

However, if you were to make several loan applications at once, you’d be triggering several small dips to your credit score in a short period of time. By the time the last lender checks your credit report, it’s possible for a good or neutral score to have dropped below their minimum credit score for lending money. It may also lead the bank to question why you suddenly need to take out several loans.

Read on to find out how to secure a personal loan while maintaining a good credit score.

Top tips for your loan application

There are a few things you can do to help your credit score and streamline your loan approval.

Shop around

Comparing personal loans before you apply is a great way to make sure you’re applying for fewer loans – thus limiting the impact on your credit score. Make sure you’re looking at comparison rates rather than interest rates as these give a better indication of how much a loan will cost to repay.

Calculate your repayments

Checking you can afford the loan will go a long way to helping your credit score and avoid loan stress. Our personal loan calculator can help you do the sums before you apply.

Create a budget

Creating a budget can help your loan application. When you apply for a personal loan, you’ll be asked for details on your income and expenses. Providing an accurate budget can make you look better to lenders.

What happens next could help your credit score

You’ve been approved for the loan – woohoo! What happens now?

Apart from receiving the funds you need, what you do next could help or hinder your credit score.

What helps my credit score?

If you’ve never had a loan or credit card before, keeping on top of your loan repayments can help improve a mid-range credit score.

If you make your personal loan repayments on time, you’ll be building a good credit report and helping your credit score.

What harms my credit score?

It might sound obvious but missing repayments and not repaying a loan will have a negative impact on your credit score.

If you find yourself struggling to repay your loan, we recommend contacting your bank or lender to discuss your options. You might be able to make reduced payments until you’re back on your feet. Financial stress can happen to anyone and it’s better to take control sooner rather than later.

How do I check my credit score?

You’re entitled to a free credit report every three months. This report includes your credit score. These credit reporting bodies (CRBs) can provide you with your free credit report:

Equifax
Call: 138 332

Experian
Call: 1300 783 684

illion
Call: 132 333

As mentioned previously, different CRBs may hold different information about you, so it’s worth checking them all.

Learn more about credit reporting.

Ready to apply for a personal loan?
Personal loans

Personal loans from Great Southern Bank offer flexible repayment options, no additional repayment fees, and personalised interest rates. Apply today.

Important Information

Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959, AFSL 238317. Conditions, fees and charges apply. This is general information and does not take into account your objectives, financial situation or needs.  Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information

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