How Do I Find A Personal Loan Without Damaging My Credit Score?

A personal loan can be used for any number of financial purposes, including paying off credit card debt, covering medical bills, paying for moving expenses, or even making large home repairs. 

However, anytime you apply for a credit-based product, like a personal loan, and take on additional debt, it is likely to impact your credit score. The effect may be minor — only dropping your score by a few points for a short period of time — or it can be significant, following you for years to come.

If you’re seeking a personal loan and don’t want to damage your credit score in the process, there are a few steps you should take.

See Where You Stand

You can request a free credit report by going to one of the three major credit bureaus. Once you’ve received your report, you should:

• Review it carefully for any inaccuracies

• Report errors (if found) to the appropriate bureau and creditor

• Review accounts with high balances or credit utilizations, for ways to improve your score

You can also get updated credit scores from a variety of places. Many credit card issuers, banks, and even the bureaus themselves offer credit score monitoring on a weekly or monthly basis. 

While these scores may not be calculated using the exact same formula as your potential lender, they at least give you a good idea of where you’re at credit-wise. They will also allow you to track your progress over time.

Research Your Options

Once you determine where your credit stands, you can begin to narrow down your personal loan options. You can search banks, such as Chase or American Express or more mobile friendly options like Money Lion.

Many lenders will publicly state their specific credit score thresholds. If you don’t meet certain score requirements, you can eliminate those lenders from your list. This will save you from experiencing an added, unnecessary inquiry on your credit, which could drop your score by a few points.

If your credit score meets other lenders’ requirements — or you find lenders that don’t publish their requirements — you can pursue these options for funding.

Get Pre-Approved

Getting pre-approved (or pre-qualified, depending on the lender) for a personal loan can be a great way to check your eligibility for loan offers without damaging your credit score.

Pre-approval is offered by many lenders and aggregator platforms. The process utilizes a soft pull (inquiry) on your credit, which won’t impact your score, while allowing lenders to get a rough idea of your credit history to determine the likelihood they will approve you for funding.

Shop Around (But Don’t Take Too Long)

Once you’ve narrowed down your list of lenders and have (hopefully) obtained some pre-approved offers, it’s time to choose your personal loan. This means submitting a formal application, which will involve a hard pull on your credit. These hard pulls, or inquiries, become part of your credit report for the next two years, and each has the ability to impact your score for a full 12 months.

It’s important to note that most credit scoring formulas — including FICO and VantageScore — allow for a loan-shopping window. This means that you can apply for personal loan products from multiple lenders within a certain period of time, and those inquiries will only count against your score once. 

This rate-shopping period lasts between 14 and 45 days, depending on the credit score formula. You can use this time to apply for loans from multiple lenders, to find the ideal personal loan with minimal damage to your credit score.

Manage Your New Loan Responsibly

Not only will applying for a loan impact your credit, taking on a new account and adding to your overall debt balance can do so as well.

As such, managing your new loan responsibly is an important factor when it comes to protecting your credit score. Be sure that you:

• Pay your required installment due each month

• Make every payment on or before your due date

• Contact your lender immediately if you lose your job or will otherwise have trouble making payments (they may be able to work out a plan with you before it affects your credit)

Late payments that get reported to the credit bureaus can damage your credit for seven whole years. Try to avoid these long-reaching impacts as best you can. 

While taking out a new loan can have some impact on your credit score, approaching the application process in the right way helps ensure that the damage is minimal and short-lived. Is it also important to practice good habits while paying off the loan, to ensure that your credit score can only go up from responsible repayment, and not down due to missed payments, short payments, or payment delinquency.