Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
Late repayments can cause you serious money problems. See our debt help guides.
Do loan applications affect your credit score?
Loan applications can impact your credit score, so it’s best to avoid making too many in a short time.
If you’re thinking of applying for a personal loan, you could understandably be nervous about how this might affect your credit rating. This might be especially true if you’re hoping to take out a mortgage in the near future or if you’ve been working to improve your credit rating.
Will loan applications be visible on my credit file?
Yes. Loan applications almost always involve an “application” or “hard” credit search, which will be logged on your credit file. It’ll be visible there to both yourself and to any future prospective lenders you authorise to run a credit check.
However, lenders don’t report to CRAs whether a loan application was successful or unsuccessful.
A loan application will remain on your credit file for up to 2 years. When you make a loan repayment, by contrast, this will remain on your credit file permanently.
Will a loan application damage my credit score?
Almost all applications for credit will have a small adverse impact on your credit score. That’s because any responsible lender will always run a “hard” search on your credit history before offering you a loan, and it’s normal for this search to have a slight negative impact on your credit score.
The good news is that this negative impact can be erased through a few months of sensible financial behaviour (making repayments on time, for example).
Most of us have to borrow money at various points in our lives, so 1 or 2 applications for credit every few years is fairly standard stuff. Anybody reviewing your credit record is unlikely to be alarmed by this. In fact, to build your credit score up to a high level, it’s necessary to use credit responsibly.
If a would-be lender can see in your credit file that you’ve borrowed money in the past and always paid it back on time, that’s reassuring (and it’ll also have helped lift your credit score). But if you’re asking to borrow a large sum of money, and there’s no evidence in your credit file that you honour your credit commitments, then that’s a bigger gamble for the lender to take.
It’s worth noting that there are 3 different widely-used credit reference agencies (CRAs) in the UK, so as an individual, you don’t have one definitive credit score (although if you have a good score with one, you’ll usually have a good score with the others). Additionally, different lenders interpret credit reports in different ways (what might be a red flag for one lender, might not be an issue at all for another).
You can check your Equifax credit score and report through Finder for free.
How can loan applications affect my chances of securing credit in the future?
If you make multiple applications for credit in a short space of time, not only will you affect your credit score, but it’s possible that a potential lender might see this as an indicator of severe financial difficulties. While the lender can’t be certain whether you’ve had applications rejected without asking you, it may draw conclusions from your credit file – for example, if you made a number of applications for credit but these were not followed by any repayments.
Because of this, it’s a smart idea to research what loans you’re likely to be approved for and only apply for one of those. That’ll save you from wasting your own time as well. Comparison sites (including Finder) can let you use an eligibility checker, so you can get a good idea which lenders would say “yes” without taking a hit to your credit score. Then, once you’ve found a competitive rate from a lender that’s highly likely to offer you a loan, you can submit your full application (and only take one small hit to your credit score at that point).
If you haven’t already, you can also check your credit score and report. You’re entitled to request a free “statutory” copy of your report from the credit reference agencies – Experian, TransUnion (formerly Callcredit) and Equifax. Getting to see your credit report should never impact your credit score and will give valuable information about how lenders see you.
The overall impact of a single loan application on your credit score is believed to be minimal, so it’s rare that it will make or break your application for a small loan. Your credit history in the months and years before your application will have a far bigger impact. However, if you’re planning on applying for a mortgage or large loan in the near future, it’s a good idea to avoid applying for any products that involve a credit check. With these large loans, the average applicant needs all the help they can get to be approved.
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Tips to protect your credit when taking out loans
Do
- Get to know your credit report to get an idea of how you look to lenders.
- Check you meet a lender’s minimum eligibility criteria before applying for a loan.
- Use an eligibility checker (either each lender one at a time on their respective sites or check multiple lenders in one go with a broker or comparison site) to find out if it’s worth applying for a particular loan in the first place.
- Shop around and then apply to a lender that you’re reasonably confident will approve your application.
- Quickly sense-check whether a personal loan is the smartest option (in some cases, a credit card can work out cheaper).
Don’t
- Make multiple applications for a loan in a short amount of time.
- Apply for any credit products in the months leading up to a mortgage application.
- Apply without running an eligibility check first.
- Apply unless you’re confident you can meet the repayment schedule.
Example: Stuart’s loan applications and his credit score
Stuart was constantly struggling to pay bills at the end of the month. He regularly applied for the cheapest personal loan he could find, without doing any checks into his perceived creditworthiness. Sometimes he’d be accepted. Other times, he’d be turned down and have to make another application.
As the months went on, he found it harder to be approved for these products. Even though he paid the loans back on time, each application harmed his credit score even further. Eventually, he could only be approved for high-interest products such as payday-style loans.
Thankfully, he ultimately sought help from a free debt specialist in order to rebuild his finances and his credit score. He also signed up for a free service to monitor his credit score and report so he could track it rising over time. From then on, he only applied for loans very occasionally, using eligibility checkers first so he had a strong idea whether he was going to get approved before he applied.
* This is a fictional, but realistic, example.
The bottom line
Loan applications do have a slight – and normally temporary – impact on your credit score. There’s nothing inherently wrong with making applications for credit, though. In fact, if a prospective lender can see that you’ve made a sensible number of applications in the past and that you always repaid outstanding credit on time, they’re more likely to trust you with their money than if you had little or no evidence of managing debt responsibly.
Frequently asked questions
Read about how different factors can affect your score
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