Are credit cards or personal loans worse for credit?

Neither credit cards nor personal loans are inherently worse for your credit. The impact depends on how you use them. Credit cards can affect your credit score more quickly because of credit utilization, while personal loans usually influence credit more gradually through fixed monthly payments.

Both credit cards and personal loans can help or hurt your credit score. Understanding how each one affects your credit can help you choose the option that best fits your financial situation.

How do credit cards affect your credit score?

Credit cards affect your credit score primarily through payment history and credit utilization.

When you use a credit card:

• On-time payments help build a positive payment history.
• High balances relative to your credit limit can increase credit utilization, which may lower your score.
• Carrying balances month to month can impact your score faster than installment loans.

Because credit cards are revolving accounts, changes in balances can cause faster swings in your credit score.

How do personal loans affect your credit score?

Personal loans affect your credit score mainly through payment history and loan balance over time.

With a personal loan:

• On-time payments help build credit steadily.
• There is no credit utilization factor like there is with credit cards.
• Paying down the loan reduces the balance predictably over time.

Personal loans are installment loans, which generally lead to more gradual changes in your credit score compared to credit cards.

How do credit cards compare to personal loans for credit impact?

Factor	Credit cards	Personal loans
Account type	Revolving	Installment
Credit utilization impact	Yes	No
Speed of credit score changes	Faster	Slower
Payment structure	Flexible minimum payments	Fixed monthly payments
Balance reduction	Depends on usage	Decreases over time

Both types of credit can be positive or negative depending on how they’re managed.

Which option is better for your credit in different situations?

• If credit utilization is a concern: Personal loans may have less impact because they don’t use utilization ratios.
• If you want predictable payments: Personal loans offer fixed monthly payments.
• If you want ongoing credit building: Credit cards can help when balances are kept low and payments are on time.
• If you tend to carry high balances: Credit cards may affect your score more quickly.

The best choice depends on your spending habits and ability to make consistent payments.

When can credit cards or personal loans hurt your credit?

Both credit cards and personal loans can hurt your credit if:

• Payments are late or missed
• Accounts go into default
• Too many new accounts are opened in a short period of time

Late payments and defaults typically have a much larger impact on credit scores than the type of credit itself.

Key takeaways

• Neither credit cards nor personal loans are automatically worse for your credit.
• Credit cards can affect your score faster due to utilization.
• Personal loans tend to influence credit more gradually.
• Payment history matters more than the type of credit you use.

Frequently asked questions

Do credit cards hurt your credit more than personal loans?

Not necessarily. Credit cards may affect your score faster if balances are high, but both types of credit can help or hurt depending on payment behavior.

Can a personal loan improve your credit score?

A personal loan may help improve your credit score over time if payments are made on time and the balance decreases.

Is high credit utilization worse than installment debt?

High credit utilization can negatively affect your score more quickly than installment debt because it directly impacts utilization ratios.

Which is better for fair or bad credit?

The impact depends on how the account is managed. Making on-time payments is more important than whether the credit is revolving or installment.

Does paying off a personal loan help your credit?

Paying off a personal loan can help your credit by completing a positive payment history, though closing an account may slightly affect your credit mix.

Updated: January 2026

 

Disclosure:

This content is general in nature and provided for informational purposes only. This content is not specific to Upstart, except where explicitly stated. This content may contain references to products and services offered through Upstart’s credit marketplace. Upstart is not a financial advisor and does not offer financial planning services.