If you’re considering taking out a personal loan, car loan, mortgage, or even a student loan, you may be wondering: Does applying for a loan hurt your credit score? The short answer is yes—but not always significantly, and not permanently.
In this guide, we’ll explore exactly how loan applications affect your credit, the difference between soft and hard inquiries, how much your score might drop, and what you can do to minimize any negative impact.
How Loan Applications Affect Your Credit Score
When you apply for a loan, lenders typically check your credit to assess your risk level as a borrower. This process can trigger what’s known as a credit inquiry—and that’s where your credit score may be affected.
Hard Inquiry vs. Soft Inquiry
There are two types of credit inquiries:
- Hard Inquiry (Hard Pull): Occurs when a lender checks your credit as part of a loan or credit card application. This can lower your score by a few points.
- Soft Inquiry (Soft Pull): Happens when you check your own credit or when a company checks your credit for a preapproval offer. This does not affect your score.
Hard inquiries are the ones you need to watch out for when applying for loans.
How Much Does a Hard Inquiry Lower Your Credit Score?
For most people, a hard inquiry will reduce their credit score by 5 points or less. In some cases, it may not affect your score at all.
Factors That Influence the Impact
- Your overall credit history: The longer and stronger your history, the smaller the impact.
- The number of recent inquiries: Multiple inquiries in a short period can raise red flags.
- The type of credit being applied for: Mortgage and auto loan inquiries are often treated more leniently.
A single hard inquiry is not a big deal. But applying for multiple loans or credit cards over a short time frame can cause a more noticeable dip.
Does Rate Shopping Hurt Your Credit Score?
No—if done correctly, rate shopping will not hurt your credit score significantly.
FICO’s 45-Day Rule
FICO credit scoring models allow you to shop for mortgage, auto, or student loans within a 45-day window, and count all similar loan inquiries as a single hard inquiry.
This means you can compare rates from different lenders without being penalized for each check.
Pro Tip: When rate shopping, do it within a tight time frame to minimize credit score impact.
How Long Do Hard Inquiries Stay on Your Credit Report?
A hard inquiry will remain on your credit report for two years, but its impact on your score usually fades within a few months.
Here’s a Breakdown
- First 3–6 months: Small impact (up to 5 points)
- After 6 months: Minimal to no impact
- After 12 months: No longer factored into FICO score
- After 24 months: Removed from your report completely
When Does Applying for a Loan Make Sense?
Although applying for a loan can cause a small dip in your credit score, there are situations where it’s worth it:
1. Consolidating Debt
A personal loan to pay off high-interest credit cards can improve your score by lowering your credit utilization.
2. Making a Big Purchase
Auto loans or mortgages are major milestones that often justify a credit check.
3. Building Credit History
If you’re new to credit, getting a loan and making on-time payments can help you build your credit profile.
Tips to Minimize the Credit Impact of Loan Applications
There are smart ways to apply for loans without damaging your credit too much.
1. Check Your Credit First
Use a soft inquiry to review your credit report and score before applying. This helps you spot and fix issues that could hurt your approval odds.
2. Limit Applications
Avoid applying for multiple loans or credit cards at once. Each hard inquiry compounds the potential score drop.
3. Prequalify Without a Hard Pull
Many lenders let you prequalify for a loan using a soft inquiry. This gives you a glimpse of your chances without hurting your score.
4. Apply Within a Short Time Frame
If you’re shopping for rates, do it within a 14- to 45-day window to count all related inquiries as one.
Does a Loan Approval Raise Your Credit Score?
Getting approved for a loan doesn’t automatically raise your credit score, but using the loan responsibly over time can improve it.
How Loan Repayment Helps Your Score
- On-time payments boost your payment history (35% of your FICO score)
- Installment loans diversify your credit mix (10%)
- Debt reduction can lower your utilization ratio
In other words, the positive impact of repaying your loan can easily outweigh the small hit from the initial inquiry.
Common Myths About Loan Applications and Credit
Let’s clear up some confusion about how loan applications affect your credit.
Myth #1: Any loan application destroys your credit score
Fact: A single hard inquiry usually has a minimal impact—if any.
Myth #2: Soft inquiries hurt your score
Fact: Soft pulls have zero effect on your credit score.
Myth #3: You should avoid applying for loans altogether
Fact: Responsible borrowing is a great way to build and improve credit.
Final Thoughts: Be Smart About Loan Applications
So, does applying for a loan hurt your credit score? Yes—but only a little, and temporarily. Understanding the difference between hard and soft inquiries, planning your loan applications carefully, and managing your credit wisely can help you keep your score strong and healthy.
✅ Key Takeaways:
- Hard inquiries may drop your score by 5 points or less.
- Soft inquiries have no impact.
- Rate shopping within 45 days counts as one inquiry for auto, mortgage, and student loans.
- Responsible loan use (on-time payments, low balances) can improve your credit over time.
Ready to apply for a loan but not sure how it will affect your credit? I can help you review your current score and give you personalized tips to prepare. Let’s make sure you’re in the best position to borrow smartly and confidently.
Let me know if you’d like this formatted as a downloadable PDF or if you want a checklist version too!
