Do Loans Affect Credit?

How New Loans Affect Credit Scores

Loans - and how you manage them - are the most important factor in your credit. Using loans and paying them off is the best way to get good credit scores.

• What is Credit?
• How Credit Scores Work

Every time you get a loan, you take on an obligation. If you have too many obligations, you become a risky borrower. Even filling out an application can affect credit scores because your lender submits an ‘inquiry’ to the credit bureaus, and that inquiry goes on your credit reports.

If have not used credit in the past, loans can actually help your credit. Paying them off responsibly shows that you are a good customer and that you keep your promises. Also, different types of loans affect credit differently. Ideally you should have a mixture of loan types (mortgage, auto, credit card, etc) as opposed to having huge credit card debt as your only loan type.

To learn more about how a healthy mix of loans affects credit, see How to Build Credit.

Return to the main page on factors that affect credit.