With the cost of living rising, energy bills at record highs, and money stresses creeping up on us all – you may find yourself looking at your bank account wondering how you’ll manage the cold winter months ahead.


If you don’t have an emergency fund in place (and over half of UK adults don’t), you may even be feeling like you have no choice but to take out a personal loan to help you manage.


But if you do decide to take out a personal loan, what are the risks? What credit score would you need to get one? And does getting a personal loan affect your credit score after that? Read on to find out.

What is a personal loan?

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A personal loan is different to a secured loan, which is usually secured against an asset. Personal loans can be used for anything like helping to pay for a wedding, instead of being fixed to a specific purchase like a house or new car. So they can be a great option when you use them responsibly.


But because they're not secured to something the bank could claim back (collateral), you’ll typically find that personal loan interest rates are higher than secured loans.


But the interest rates on personal loans are often lower than credit cards. The best way to check this is to compare the APR in the fine print, between the loans and cards you’re deciding to use. The lower the APR, the less you’ll pay back in interest and fees.

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What credit score do you need for a personal loan? 

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There isn’t a specific credit score that will make sure you are accepted for a personal loan. A “good” or “excellent” credit score will give you the best chance, but you can still get a loan with a bad credit score. You can read more about what credit score you need for a loan in our blog.

Check your credit score before applying for a personal loan

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Before you decide to apply for a personal loan, check your credit scores with each of the three main credit reference agencies. They each generate their own score for you and you can use our handy table here to see if you are in the good to excellent credit score bracket. .


You can check your scores without paying a fee or negatively affecting them by using these services (and they often offer affordability scoring too):

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ClearScore (uses Equifax data)*

Credit Club (uses Experian data)
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Intuit Credit Karma (uses TransUnion data)

*If you sign up for ClearScore using this link, we get a small commission. But we only recommend services we really believe will help you. Win win!

But it’s also important to make sure you know what impact a personal loan can have on your credit score. Loqbox is here to help you make the right choice for you.

Does getting a personal loan affect your credit score?

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Yes, absolutely it does! You should be really sure that you need a personal loan before you apply for one. Can you afford to pay the money back? Do you have any other options? Is this the right time?


Take stock of your options. Be realistic and don’t borrow more than you need to avoid getting into more debt than necessary. But if you’ve done your research and you’re sure that a personal loan is the best option. Now what? What does it mean for your credit score?


The truth is, a personal loan can have both a positive and negative impact on your credit score. It depends on how you manage it. Loqbox has some great tips and advice for you so you know what you’re getting into.

Does a personal loan reduce your credit score?

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It can, yes. But if you make your repayments on time and in full, then you don’t need to worry.


This is the balancing act you need to get right to keep your credit score up. Borrowing credit and paying it back responsibly shows that you are creditworthy (which is what lenders want to see). So, let’s get into it!

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How much do personal loans affect your credit score?

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Your credit score is calculated by the three main UK credit reference agencies (Experian, Equifax and TransUnion). Unfortunately, they don’t make their calculations public. But we do know that the main factors they look at involve judging how responsible you are with your money.


‍Borrowing money and paying it back is the bread and butter of your credit score. The way that you manage your personal loans is really important to your credit score!

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Will applying for a personal loan affect my credit score?

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When you apply for a personal loan, the lender does a hard credit check on you. This will temporarily reduce your credit score. Which is not something you need to worry about as a one-off, because it’s a totally normal part of credit scoring.


After about six months of repaying them, you’ll have shown that you are a responsible person to lend and your credit score should start to rebuild itself.


Lenders want to see that you can manage your money well. So if you open more than one new account or credit agreement in a six month period, you’ll have multiple hard checks showing on your credit report and this may appear to a lender that you are struggling with money and asking to borrow what you can’t afford. Not ideal, right?


The best route forward is to remember that things like a new bank account, loan, utility bill set up, credit card or a mortgage will cause a dip in your credit score and you’ll need six months of proving you can pay off credit responsibly before it starts to go up again.


So with this in mind, if you are declined for multiple loans in a short space of time, that will hurt your score. You may want to consider using a loan affordability calculator to help you predict that your personal loan application will be accepted before the hard credit check happens.

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Would missing a personal loan repayment hurt your credit score?

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Yes! Missing a personal loan repayment is bad for your credit score, and if it does happen, it’ll be marked on your credit report for six years (you can read here about why missing payments harm it here). 

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The best way to make sure that you don’t miss your loan repayments is to not borrow beyond your means. By not borrowing unless you really have to and when you know you can afford to pay it back.


Maybe consider saving instead of borrowing if you are able to wait for the purchase. Loqbox Save lets you improve your credit score while you save, so that gives you the best of both worlds!

Can a personal loan increase your credit score?

Yes! As mentioned above, showing that you are able to borrow credit and pay it back in full and on time, is a great way of showing your creditworthiness. This is the best way to grow your score.


Having frequent repayments of a loan on your credit history is not only good for your credit report – it can actually help give it a boost! That’s how paying off a personal loan can affect your credit score in a good way.


Of course it’s true that if you have never taken out a loan, you will never have missed a payment. But you also don’t have a track record. Not borrowing makes you an unknown quantity, which in turn makes you more of a risk.


‍So it’s good to get a personal loan when you can afford to pay it back. If you are worried that you will struggle with the repayments then perhaps you should look at other options. The negative impact of missing your repayments is equal to the positive of managing your personal loan well. 


If you have struggled with a personal loan in the past and you are looking to give your credit score a boost. Why not get started with Loqbox. It’s a proven way to build your credit score while you spend, save and pay rent!