Does Applying for a Loan Hurt My Credit Score?

Applying for a loan can temporarily knock a few points off your credit score.
Profile photo of Bev O'Shea
Written by Bev O'Shea
personal finance writer
Profile photo of Anisha Sekar
Co-written by Anisha Sekar
Why Does My Credit Score Drop When I Apply for a Loan?

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

If you keep a close eye on your credit score, you might notice that it drops shortly after you apply for a loan.

That can happen because of a “hard inquiry” — or lenders checking your credit to decide whether to approve a loan. Scoring models typically view a loan application as potentially increasing your risk as a borrower.

That means your application, whether it is approved or not, can shave a few points off your credit score. And if your score is on the bubble for approval, you may need every possible point.

Get score change notifications
See your free score anytime, get notified when it changes, and build it with personalized insights.

What does a loan application have to do with my credit score?

Lenders use credit scores to assess your creditworthiness: Can they count on you to pay back a loan (or rent an apartment, or make payments on your phone bill, etc.)?

Doing things that can be considered risky, like carrying a high balance on your credit cards or missing payments, will lower your score. So why would a new application be considered risky?

It’s all numbers and probability. Statistically, people with more credit inquiries are more likely to declare bankruptcy, meaning creditors are at risk of losing their money, according to FICO, a widely used credit score. So credit inquiries, particularly lots of credit inquiries at once, can be a red flag.

However, rate shopping for student loans, mortgages and auto financing that can result in multiple inquiries is treated a bit differently.

In those cases, you have a window of time (14 to 45 days, depending on the scoring model) during which you can apply for as many of those loans as you want with the same effect on your scores as applying for one. This is because lenders expect you to compare rates for those loans, and scoring models don’t punish you for being financially savvy.

How do I minimize hard inquiries?

If you need a loan, there’s probably no way to avoid a hard inquiry. But the score benefit you get from on-time payments will outweigh a short-term point loss from applications.

What you want to avoid is applying and getting turned down. Then you may still need a loan, but you'll have a lower credit score.

Here’s how to make the most of an application:

  • Be as certain as you possibly can be that you meet the qualifications and will be approved. Some lenders offer pre-qualification, which typically does not involve a hard inquiry and can help you determine whether you’re likely to qualify.

  • Check terms before you apply, and be sure the loan is a good fit for you.

  • Avoid applying for new credit for at least six months before you plan to make a large purchase that will require a loan — a house or car, for example.

Get more financial clarity with NerdWallet
Monitor your credit, track your spending and see all of your finances together in a single place.

Why checking your own credit is smart

While a credit check when you apply for credit can cause your score to dip, checking your own credit has no effect on your score.

It’s perfectly safe, and it's a great way to know ahead of time what a lender will see and whether you are likely to qualify.