Does Having Loans Open Impact Your Credit Score?

Last updated on May 20th, 2026 at 04:35 pm

Yes, having loans open such as credit cards, instalment loans, payday loans and personal loans does impact your credit score.

Typically, taking out multiple loans or credit cards will cause your credit score to fall as it increases your total debt burden. Whilst you might be paying off these cards and loans on time, simply having significantly more debt open causes your credit score to fall so that other future lenders act more cautiously and avoid giving you too much additional debt. 

Seeing your credit score fall can be frustrating especially if you have other important purchases or are applying for a mortgage, since you will need the best credit score possible for this. We dive a little deeper to understand the impact of additional loans on your credit score.

Why Does Having Loans Open Impact Your Credit Score?

Having loans open in your name or having a joint loan with someone else like a spouse, will impact your credit score for three main reasons:

Raises Credit Utilization (For Credit Lines): If the open loan is a revolving line of credit (like a personal line of credit) and you use a high percentage of the limit, your score will drop.

Increases Total Debt Burden: Lenders look at the total amount of money you owe. Owing a large amount on a newly opened loan can temporarily lower your score until you pay down the principal.

Triggers Hard Search Inquiries: Applying to open a new loan requires a hard credit check. This typically dips your credit score by a few points for a short period.

Can Having Loans Open Positively Impact Your Score?

Yes, having loans open can positively impact your credit score provided that you are paying them off on time and paying off the principle of the loan. 

Adds positive data to your credit history – By having credit cards and loans and paying these off on time each month, this – and this is a huge factor, making up 35% of your FICO® Score. Importantly, you need to be paying off quite a bit of the loan for it to make an impact, otherwise, it is still deemed as being risky to have too much debt open.

Equally, the type of loan is important, with some credit reference agencies taking a more negative view on payday loans as something that is only used as a last resort – and this can be worse for your overall score.

Improves your credit mix: The credit reference agencies score favourably if they can see that you can handle different types of debt. For instance, having an open installment loan (like a mortgage) alongside credit cards improves your credit mix, which accounts for 10% of your score. After all, if you have no history of debt or cards at all, there is simply no data to determine your credit score – so having a little bit of debt is healthy to build up a score.

Increases account age: Keeping a loan open and active over several years increases your average length of credit history and this accounts for 15% of your score. 

See also: What affects your credit score?

Is My Credit Score Negatively Impacted Even When I am Paying Off My Loans On Time?

Yes, your credit score can still be negative even when you are paying off loans on time, if it is considered that you have a lot of debt still open. 

If your debt-to-income ratio is high, the credit reference agencies score this accordingly and adjust your credit score.

Whilst paying off loan repayments each month on time is advised and recommended, this needs to be consistent and over a period of time for your score to improve.

Of course, paying off the loan in full will help improve your credit score long-term.

What Happens To My Credit Score When I Pay Loans Off?

When you pay off a small loan or large loan, you actually have a temporary score drop to your credit score. Whilst this is not as you would expect, this is because your credit mix may weaken if now you only have one type of credit open e.g credit cards.

But once this settles, which is only a short period such as a few weeks, you should expect to see your credit score increase quite substantially. 

Want To Keep Your Credit Score Strong? Here Are Dos and Don’ts. 

Don’t take out loans for the sake of boosting credit – It is not advised to take out loans for the sake of trying to grow or increase your credit score, especially high cost loans such as payday loans online. There are legitimate ways to build up and increase your credit score and if you are registered to Experian or ClearScore, they will give you tips on how to do this.

Don’t draw money from your credit card – Your credit card may come with a limit that you are allowed to access from an ATM such as £1000 per month. Although this is yours to do so legally, simply withdrawing cash from your credit card will cause your credit score to fall.

Don’t share accounts with someone with bad credit – If you share a financial account with a spouse or family member with bad credit, such as a mortgage or personal loan, this can negatively rub off on you. This is because it is assumed that you will be helping out this person if need be. So if you can avoid sharing accounts and loans with someone with bad credit, this is advised. 

Do the simple things – Some very simple things can keep your credit score strong and intact, including joining the electoral register to vote, which is free to do. By confirming your name and address with the local authorities, this makes you look creditworthy and less likely to go awol in the eyes of a potential lender.

Other simple things like keeping to loan and credit card payments on time, or having a plan B if you are struggling to keep up with payments – and also paying for other simple things on time such as your mobile phone.