To determine whether credit scores increase after taking out a personal loan, analysts at LendingTree looked at the results of people who took out personal loans to see how their credit score changed after one month, three months, six months, and 12 months has. They broke down the analysis by credit rating to look at people with at least somewhat similar credit profiles.
The study found that most people notice a small increase in their score right away, but the score tends to decrease, often being a few points lower after a year.
- About 62 percent of borrowers see their credit score improve a month after taking out a personal loan.
- After 12 months, around 45 percent of borrowers still have higher scores than in the month of lending.
- People with lower scores are more likely to see an improvement in creditworthiness: 68 percent of those who started with scores below 620 saw their scores improve within a month, 71 percent had higher scores after three and six months, and 58 percent had thereafter higher scores a year.
- Those with scores below 620 saw an increase of 20 points, or 3.4 percent, after one month. They also saw an increase of 10 points, or 1.8 percent, after 12 months on average.
- At the other end of the spectrum, borrowers who started with higher scores are less likely to see an improvement in their creditworthiness. Fifty-seven percent of people with scores of 750 or greater see their scores improve after one month, and about 39 percent have higher scores after one year.
Credit score bumps don’t last
Sixty-two percent of borrowers see their score increase a month after taking out a personal loan, but the number of borrowers who maintain this increase decreases over time. After 12 months, 45 percent scored higher than lending.
In fact, after one month, borrowers see their scores increase by an average of 11 points, but after six months, the scores are back to where they started. Worse, after 12 months, borrowers are seeing results 10 points lower on average than the month their loans were originated.
Lower initial loan values provide for higher jumps after lending
The lower a person’s baseline score, the more likely they are to see an increase in credit score, the larger the increase will be, and the more likely they are to maintain it for a year. This is encouraging and dispels the notion that people with poorer credit are more irresponsible in their personal lending.
Across all loan grades studied, the lower the starting score, the higher the percentage of borrowers whose score increased. This is true for all periods studied, except for the first and last months, when people with scores of 750 or higher were more likely to have a higher score than the credit range directly below them (700-749).
71 percent of borrowers with scores below 620 have higher scores three and six months after their loan, which fall to 58 percent at 12 months — still a clear majority. This represents an average increase of 20 points after one month before falling to an average of 10 points after 12 months.
For the full report see https://www.lendingtree.com/personal/increase-credit-scores-of-most-borrowers/.
LendingTree (NASDAQ: TREE) is the nation’s leading online marketplace, connecting consumers with the choices they need to make their financial decisions with confidence. LendingTree enables consumers to buy financial services the same way they buy airline tickets or hotel stays, by comparing multiple offers from a nationwide network of over 500 partners in one simple search and choosing the option that best suits their financial needs. Services include mortgage loans, mortgage refinances, auto loans, personal loans, business loans, student refinances, credit cards and more. By the My rental tree Platform provides consumers with free credit scores, credit monitoring, and credit improvement recommendations. My LendingTree proactively compares consumers’ credit accounts to offers in our network and notifies consumers when there is an opportunity to save money. In short, the purpose of LendingTree is to simplify financial decisions for life’s meaningful moments through choice, education and support. LendingTree, LLC is a subsidiary of LendingTree, Inc. For more information, visit www.lendingtree.comcall 800-555-TREE, like our Facebook page and/or follow us on Twitter @LendingTree.