How Long Do Personal Loans Stay on Your Credit?
Uncover the full duration personal loans feature on your credit profile and how that shapes your financial narrative.
Personal loans are a type of installment loan, where a borrower receives a lump sum of money and repays it over a set period through fixed monthly payments. These loans can be used for various purposes, such as consolidating existing debt, covering unexpected expenses, or making a large purchase. Understanding how personal loans appear on credit reports is important for managing financial health and future borrowing opportunities.
Credit Reporting for Personal Loans
Personal loans are reported to the three major nationwide credit bureaus: Experian, Equifax, and TransUnion. This information includes the account’s opening date, original principal amount, current balance, and monthly payment activity. Lenders update this information with the credit bureaus monthly.
For accounts in good standing, positive payment history can remain on a credit report for up to 10 years from the date of final payment or closure. This extended presence of positive data contributes to a robust credit history.
Impact on Your Credit Score
The presence and management of a personal loan on a credit report can affect an individual’s credit score. Credit scoring models, such as FICO, weigh different aspects of a credit report.
Payment history accounts for approximately 35% of a FICO score, making timely payments on a personal loan a positive contributor. Conversely, late payments can lower credit scores.
Amounts owed, representing about 30% of a FICO score, also play a role. While taking out a personal loan increases total debt, consistent payments reduce the outstanding balance, which can improve this factor over time.
The length of credit history, comprising around 15% of the score, considers the age of accounts. A new personal loan might slightly decrease the average age of all accounts initially, but it contributes to a longer credit history as time passes.
New credit, accounting for about 10% of the score, includes recent applications. When applying for a personal loan, a hard inquiry is made on a credit report, which can cause a small, temporary dip in the score, one to five points. This inquiry can remain on the report for up to two years, though its impact diminishes after about a year.
Credit mix, also about 10% of the score, benefits from having a variety of credit types, such as installment loans like personal loans, alongside revolving credit like credit cards.
Factors Affecting Reporting Duration
The duration a personal loan remains on a credit report varies depending on its status and payment history. A personal loan paid in full and closed will remain on a credit report for up to 10 years from the date it was paid off. This positive entry continues to reflect responsible credit management over an extended period.
Negative events have different reporting timelines. Individual late payments, reported after they are 30 days or more past due, will stay on a credit report for seven years from the date of the initial delinquency. This seven-year period begins with the first missed payment that led to the delinquency, regardless of whether subsequent payments are made.
If a personal loan becomes delinquent, it may lead to a charge-off. A charge-off occurs when a lender determines the debt is unlikely to be collected after 120 to 180 days of non-payment. This negative mark remains on the credit report for seven years from the date of the first missed payment that led to the charge-off, even if the debt is later paid or settled.
When a debt is sent to collections, it also appears on the credit report. A collection account can stay on the report for seven years from the date of the first missed payment that caused the account to go into collection, whether paid or unpaid. An account settled for less than the full amount owed is considered a negative event and remains on the credit report for seven years from the date of the first delinquency that prompted the settlement.
In the case of bankruptcy, personal loans included in the proceedings will be affected by the bankruptcy’s reporting period. A Chapter 7 bankruptcy remains on a credit report for 10 years from the filing date. A Chapter 13 bankruptcy, which involves a repayment plan, stays on the credit report for seven years from its filing date. These derogatory marks can significantly impact a consumer’s ability to obtain credit.