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Will applying for a personal loan affect my credit rating?

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If you’re a diligent borrower and consistently prioritize your credit score, you’ll likely have it in mind when applying for new credit.

So, when it comes to submitting an application for a new personal loan, you might be wondering if your credit score could be affected.

Like most credit products, applying for a personal loan has the potential to affect your credit score, but whether or not – and to what extent – will likely depend on individual circumstances.

When Can Applying For A Personal Loan Negatively Affect Your Credit Score?

Generally speaking, when submitting a personal loan application, there are two key mistakes that could hurt your credit rating:

  1. Submit multiple applications at the same time – perhaps with the mistaken belief that you could double your chances of approval.
  2. Failing to do your due diligence, get rejected by the lender, then reapply soon after.

Both of these mistakes can ultimately hurt your credit score in the same way.

Whenever you submit a personal loan application, the lender will investigate your credit report as part of the decision-making process. This will be saved in your file as a credit check and is visible to other lenders who conduct subsequent inquiries.

If your credit report contains evidence that you applied for multiple loans at once, or in quick succession, lenders may be reluctant to approve your application as this can be an indication of credit stress.

Credit providers have an obligation to respect the responsible lending obligations as mandated by the Australian Securities and Investments Commission (ASIC). This means that if the lender has reason to believe that the loan product you have applied for might not be suitable for you, they are obligated to reject the application.

According to the two major credit bureaus, Equifax and Experian, having several serious inquiries on file in a short period of time can also have a negative effect on your overall credit score.

When can a personal loan application have a positive impact on your credit score?

While applying for a personal loan doesn’t necessarily have a positive effect on your credit score, the way you pay off your loan could be.

Since the introduction of comprehensive credit reports, your credit report will show both positive and negative credit events. Which means if you consistently pay off your loan on time and successfully repay your loan on its terms, you could see a positive impact on your credit score.

How do I protect my credit score when applying for a personal loan?

There are a number of things you can do before you apply for a loan that could help protect your credit score, including the following:

  • Check your credit score – First of all, it’s worth knowing your credit rating so you get a better idea of ​​what personal loans you might be eligible for. Plus, regular access to your credit report allows you to check for discrepancies and dispute any that may arise. The RateCity Credit Center allows you to perform a free soft survey that will have no impact on your credit score.
  • Exercise due diligence – It’s about doing a complete personal loan comparison and making a short list of the products that are best suited to your needs.
  • Check the loan criteria – Once you’ve selected your preferred loan product, it’s time to make sure you meet the lender’s eligibility criteria. It is essential that you meet these conditions to prevent your application from being rejected. Do not hesitate to contact the lender directly if you have any questions or concerns.
  • Request pre-approval – Many lenders offer pre-approval for personal loans so applicants can find out how much they can borrow before submitting a formal loan application.
  • Take your budget into account – Whether or not you apply for pre-approval, it’s worth doing your own calculations to make sure loan repayments will fit comfortably within your budget. RateCity’s personal loan calculator can provide you with a repayment estimate based on loan amount, interest rate, and loan term.
  • Wait before reapplying – In the unfortunate event that your application is rejected, it may be useful to wait a while before submitting a new application to avoid having too many applications recorded in your file. If you’re having trouble managing your finances, consider contact the national debt helpline for free financial advice.


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