Loans & Credit: Does Applying Hurt Your Credit Score?

By Upstart Content Team | Updated November 12, 2022
reading time 3 min read
Senior woman using her phone to learn about loans and credit

Whether you’re already there or not, one thing’s for sure: you’re probably concerned about not hurting your credit. That’s especially true if you’re hoping to use your credit for something soon, like buying a house or renting an apartment. 

That brings up the question: does applying for a loan hurt your credit? It turns out that it can go both ways—in the short term it can temporarily drop your credit score by a few points, but in the long run, it can actually help. Here’s what to know. 

Can applying for a loan hurt your credit?

If you’re looking to take out a loan, whether it’ll affect your credit or not depends on what type of application you’re doing. 

Soft credit checks

If you’re just shopping around for rates, you’ll generally fill out a smaller form. After you hit submit, the company will do a “soft credit check”—where it checks a limited version of your credit report. From that, they’ll tell you whether you’re likely to be approved, and if so, at what rates. 

This is handy because soft credit checks are not typically recorded as official credit applications on your credit report, and thus they have no effect on your credit score. You can have companies do soft credit checks all day, and there may be no penalty. 

Hard credit checks

On the other hand, when you’re ready to actually complete the loan application and formally take out a loan, that’s when the company will do a “hard credit check.” 

However, depending on the type of credit you apply for, you could get a saving grace here. If you’re shopping for the same type of loan over a short period of time—typically two weeks— any hard credit inquiries are generally bundled up and recorded as a single credit inquiry. As long as you do your loan shopping within a short period of time, you’ll be OK no matter whether it’s recorded as a hard or a soft inquiry. 

How can I know whether a company will do a hard or a soft credit check?

In general, when you’re just checking your rate and not formally applying for a loan, it’s usually a soft credit check. Hard credit checks aren’t normally done until you’re actually going through with your loan application. 

You can also look for clues. Usually, when you apply for loans online, it’ll specifically say things like “checking your rate won’t impact your credit” or “we’ll do a soft credit pull.” 

And if you’re ever unsure, you can always ask the company you’re checking your rates with. 

How does your credit score change after you’ve applied for a loan?

Just about everyone will see a temporary drop in their score due just to the hard inquiry that’s now listed on their credit report. But after that, having a new debt can impact your credit in different and hard-to-predict ways. 

First, the bad news. If you’re taking out a new loan, it increases the amount of money you owe, which can harm your credit score. Taking out a new loan can lower the average age for all of your debts combined, which can also lower your score. 

But there are also factors that can swing in the opposite direction too, and actually help your credit score. If you’re taking out a new type of debt, it can diversify your “credit mix” and show lenders that you can handle different types of debt too. This can help your credit score. In addition, if you make all of your payments on time, that can add a big boost to your credit score over time, especially as you start to pay down your debt.

Keep tabs on your credit progress

Overall, you can expect your credit score to lower by just a little bit after you formally apply for a new loan. But after that, there are a lot of factors that interplay together and cause your score to either go up or down. If you make all of your payments on time, though, it’ll generally trend upwards.

Consider signing up for a free credit monitoring service to see how your credit score changes over time. That way, you can see exactly how your new loan is hurting or—hopefully—helping you grow your credit score further.

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

About the Author

Upstart Content Team

The Upstart Content Team shares industry insights, practical tips, and borrower success stories to help people better understand the important “money moments” of their lives.

More resources you may be interested in

What to Do Before a Credit Check to Get Approved
What is a Hard Credit Inquiry? Why Does it Matter to My Credit?
Why Did My Credit Score Drop for No Reason? 10 Common Reasons Your Score Went Down

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Check your rate lock Won't affect your credit score¹

1. When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.