Can a personal loan help your credit score? Here’s what you need to know

A personal loan is a type of credit product that’s listed on your credit file. Applying for it and being approved by a lender doesn’t automatically help your credit score; it comes down to how you manage your repayments over the term of your loan.

At MONEYME, we believe understanding the relationship between personal loans and credit scores will help you make better financial decisions. It’ll place you in a much better position to decide whether you’re ready to apply for a personal loan or need more information to weigh your options. Here's everything you need to know about how personal loans and credit scores work together.

How personal loans interact with your credit score

Australia has two credit reporting agencies that calculate credit scores based on the information in your file. Under Australia’s Comprehensive Credit Reporting (CCR) system, your file includes two years of repayment history across your active credit accounts. It shows both positive and negative payment behaviour, such as making payments on time (positive) and overdue payments (negative).

For example, if you have a $15,000 personal loan and make every repayment on time for 24 months, that creates a clear pattern of responsible behaviour that lenders can see when assessing future applications.

A personal loan in your name would show up on your file along with your repayment history, and it would be part of the credit mix that determines a high or poor credit score.

Does applying for a personal loan affect my credit score?

Yes. Applying for a personal loan and submitting a formal application creates a hard inquiry on your credit score. It’s recorded and visible to other lenders for five years. A single, hard inquiry has a small and temporary impact on your credit score, while multiple applications in quick succession can give the impression that you’re shopping around for sources of finance.

Checking your credit score before you formally apply for a personal loan is good practice. With MONEYME, you can also see your personalised rate and estimated repayments in 90 seconds without affecting your credit score.

So you can make an informed decision before starting a formal application that could impact your credit score.

Consistent on-time repayments support a healthy credit score

Once you have applied for and been granted a personal loan, paying on time is what shapes your credit score positively. Here’s how it works:

Creates positive signals

Every payment that’s made on time is a check against your file. Making your scheduled repayments consistently over 12 to 24 months builds a track record that lenders look for when assessing future credit applications. The longer and cleaner the record is, the stronger your credit profile becomes. Setting up a direct debit aligned with your pay cycle is the most reliable way to ensure you never miss a single payment.

Diversifies credit mix

Credit scoring models assess the variety of credit types you hold, such as credit cards, home loans, car loans, and personal loans, when calculating your credit score. Adding a personal loan to your profile can contribute positively towards it.

Reduces credit utilisation

A personal loan can help in consolidating your debt. If you're carrying balances across multiple credit cards, your overall credit utilisation ratio increases. Lenders view a high ratio as a risk signal, even if you're making minimum payments on time. Using a personal loan to pay off those balances brings your revolving credit utilisation down, which can help protect your credit score.

The key is to not run up new debt on your credit cards after consolidating, otherwise you'll end up with more debt overall.

How a personal loan can work against a credit score

That said, there are ways a personal loan can work against your credit score, too:

Missing or late loan repayments

Late or missed repayments have the biggest effect on your credit score. Under CCR, a missed payment of more than 14 days is recorded on your file and visible for up to two years. A history of missed payments increases perceived risk for lenders and impacts future credit applications.

Borrowing more than you can afford

Borrowing more money than you can comfortably repay puts you at risk of missed payments and raises concerns with lenders about your overall debt position. Before applying, do your numbers. You can use MONEYME’s loan calculator to estimate your repayments and confirm they will fit within your budget.

Multiple loan applications

Multiple applications in a short period can signal to lenders that you're actively seeking credit and may have been rejected, which can affect how your personal loan application is assessed. Checking your rate with lenders who offer a soft enquiry option first, like MONEYME, can help you make an informed decision about which option is right for you before you apply.

Common questions and misconceptions

Here are some commonly asked questions by customers about credit scores and personal loans.

Will a personal loan automatically improve my credit score?

The loan itself doesn't improve your score; it’s your repayment behaviour. Making every repayment on time over an extended period is what builds a positive history.

Do I need a perfect credit score to get a personal loan?

It varies by lender, a high score will generally help you get a better deal but isn’t necessarily a hard requirement. Your income, employment history, expenses, and existing debts all play a role in the assessment. Having a low credit score doesn't automatically mean rejection; it may affect the personalised rate you're offered. MONEYME assesses the whole application rather than your credit score alone.

Will paying off a personal loan early hurt my credit score?

Paying off a loan early won't usually damage your credit score. It removes an active account from your file, which slightly reduces your credit mix, but the positive repayment history built while the loan was active remains on your file for two years. 

MONEYME doesn’t charge early exit fees, so if your circumstances change and you want to pay off your personal loan, you can do so at any time without paying a penalty.

About the MONEYME personal loan

MONEYME personal loans are designed to be transparent, flexible, and built around your needs. With personalised rates that beat the banks loan amounts from $5,000 to $70,000, and terms from 3 to 7 years, there's a range of options to suit different situations, such as consolidating debt or covering a major expense.

Check your rate before you apply

Ready to see how a personal loan could work for you? Check your rate and estimated repayments in minutes, with no impact on your credit score. 

Want to understand your credit profile first? MONEYME's credit tool gives you a clear picture of where you stand and tracks changes over time. You can check your score anytime in the app.

Find out more about MONEYME personal loans.