Shannon McLay, founder of financial services company The Financial Gym says, “It’s important to note that your interest rate with a personal loan may be lower than your credit card rates.
And according to McLay, if you miss payments on your personal loan, it will most likely negatively affect your credit scores.
Is a personal loan better than credit card debt for credit score?
And if you use a personal loan to pay off credit card debt, you’ll reduce your credit utilization ratio. Keep in mind that both personal loans and credit cards can also hurt your credit. Making late payments or missing payments can lower your credit scores, making it more difficult to get credit in the future.
Will paying off a personal loan help my credit?
This doesn’t mean that paying off an installment loan isn’t good for your credit score — it is. The more accounts you have, the more it will affect (and probably reduce) your credit score. And when you pay off a loan, you have one less account with a balance, which is typically good for your credit scores.
Are personal loans bad for your credit?
A personal loan can consolidate credit card debt and improve your credit score for several reasons: A personal loan is an installment loan so debt on that loan won’t hurt your credit score as much as debt on a credit card that’s almost to its limit, thereby making available credit more accessible.