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Question
why will a loan hurt my credit?
In the credit simulator a $5000 loan drops my credit score by -11 points. A $5000 line of credit increases my credit by +23 points. Why would a loan drop my credit score if I have a past history of 2 loans (auto, school) that were both paid on time and in full before the end of the loan term?
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frenchmonet
1 year ago
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i would say that a loan is good to have...but your credit shouldnt suffer, especially if you pay it on time
blindley 1 year ago
If you take a loan of 5000 now you have to pay it off. So your available income is decreased due to the loan. Due to that your credit score decreases. After you pay off the loan, however, it shows that you are responsible with your credit and your credit score will improve. If you get an increased credit like of 5000, you haven't borrowed any new moneys. So your available income hasn't decreases i.e. ylu can still get a loan as before. But wait! Not only have you not worsened somethignyou have improved it -- because you have increase how much you could borrow but haven't. So your credit score goes up. Hope this helps.
ladald 1 year ago
Yes that explains it. Thank you Ladald.
frenchmonet 1 year ago