How a Personal Loan Affects Your Credit Score

How Credit Scores Are Calculated in Australia

In Australia, credit reporting bodies such as Equifax and Experian compile your credit score based on information lenders provide. Your score is a numerical summary of your credit history, not a single national figure.

According to Moneysmart, your credit score is based on the amount you've borrowed, the number of credit applications you've made, and whether you've made payments on time. Under comprehensive credit reporting, industry sources, such as an Experian report, indicate that lenders can see up to 24 months of your repayment history on credit accounts, including personal loans.

• Credit reporting bodies in Australia include Equifax and Experian, as well as others like Illion and TaleFin.
• Credit scores range from 0 to either 1,000 or 1,200 depending on the agency: Equifax uses 0–1,200, while Experian and illion use 0–1,000.

Sources: Moneysmart.gov.au (Australian Securities and Investments Commission), Parliament of Australia (hosted) / Experian

Impact of a Hard Inquiry

When you apply for a personal loan, the lender typically makes a credit enquiry—often called a 'hard inquiry'—which appears on your credit report. While a single hard inquiry may have a small negative effect on your credit score, the impact is usually limited.

The exact number of points lost is not publicly standardised, and there is no authoritative public figure for how long hard inquiries stay on Australian credit reports. Lenders may see recent inquiries, but the duration is not standardised. If you make multiple credit applications within a short period, this can reduce your score more noticeably, so it's wise to space out applications.

Sources: Moneysmart.gov.au (Australian Securities and Investments Commission), Swoosh

Effect on Credit Mix

Personal loans are a type of installment credit, which adds variety to your credit profile when you already have other credit types, such as credit cards. Some lenders may view a mix of revolving and installment credit positively, but this is not a guaranteed factor in Australian credit scoring models.

According to Swoosh, having a personal loan can contribute to a positive credit history when you manage it well. However, the main influence on your score remains your payment behaviour, not just the types of credit you hold.

Sources: Swoosh

Effect on Credit Utilization

Credit utilization typically refers to the amount of revolving credit you're using compared with your credit limits. In Australia, personal loans are installment credit, not revolving credit, so they are not included in utilisation calculations the same way credit cards are.

The impact of personal loans on utilisation is indirect. When you take out a personal loan, your overall debt increases, which could affect your financial picture. Lenders may consider your total debt obligations when assessing affordability, but Australian credit scoring models do not directly include utilization for installment loans.

Sources: Swoosh

Building Credit with On-Time Payments

Making your personal loan repayments on time is one of the most effective ways to build a positive credit history. According to industry sources, lenders can see up to 24 months of your repayment history, so consistent on-time payments are recorded and can improve your credit score over time.

As Swoosh explains, a personal loan can positively affect your credit score, but it won't automatically do so—it depends on your repayment behaviour. A history of making credit repayments on time is a key factor that can raise your score.

Sources: Parliament of Australia (hosted) / Experian, Swoosh

Risk of Default and Negative Markers

Missed repayments can negatively impact your credit score. More seriously, if you default on a personal loan, that default can remain on your credit report for five years. In the case of a 'clearout'—when you couldn't pay and the account was closed with a partial payment—it can remain for seven years.

Negative markers such as defaults or clearouts signal risk to future lenders and can significantly lower your credit score, making it harder to obtain credit in the future.

Sources: Moneysmart.gov.au (Australian Securities and Investments Commission), Parliament of Australia (hosted) / Experian, Swoosh

How Long the Impact Lasts

The length of time a personal loan affects your credit score varies. Positive repayment history can be visible for up to 24 months, while a default can remain on your report for five years (or seven for a clearout). There is no authoritative public figure for how long hard inquiries stay on your report; lenders may see recent inquiries, but the duration is not standardised.

As long as you keep up with repayments, a personal loan can gradually improve your credit score. However, if you miss payments or default, negative information can outweigh the positive impact and stay on your report for years.

Sources: Moneysmart.gov.au (Australian Securities and Investments Commission), Parliament of Australia (hosted) / Experian