Personal Loans and Credit Scores – Episode #70

Personal Loans can impact credit scores because they are an example of an installment loan and installment loans are a key factor of the credit score pie. But there are all kinds of personal loans and only certain types are reported to the credit bureaus.

Here’s a list:

1. Personal loan from a large bank – these are almost certainly reported to all the credit bureaus.
2. Personal loan from a mid-size bank – this may or may not get reported to the bureau, or it might only get reported to 1 of the 3 credit bureaus.
3. Personal loan from a credit union – Since they are regional in nature, this may or may not get reported to the bureau, or it might only get reported to 1 of the 3 credit bureaus.
4. Personal loan from a friend – these are certainly not reported to the credit bureau
5. Personal loan via a peer-to-peer lender
6. Personal loan via a payday loan – not a good idea and may or may not be reported

Personal loans can be a good idea or a bad idea when it comes to credit scores. That’s because a personal loan can be a really useful tool for first time credit builders, expats and credit re-builders. It’s a good way to establish a mixture of credit as it’s the smallest installment loan choice. You can get a personal loan for $500 but it’s hard to get a car loan for that amount. Therefore, you get to build your credit at a small price.

However, if you are in financial distress, a personal loan may be path to digging a deeper hole. If you are in this situation, it’s best to find a credit counselor to help you determine the right action plan.