How loans affect your credit file

Every loan you take out leaves a trail. When you apply, the lender runs a hard credit check that leaves a footprint on your credit file¹. Once the loan is running, how you repay it is recorded too: payments made on time can improve your credit score over the long term², while missed payments, defaults and court judgments go on the file and can make it harder to get credit again³.

The effects vary in size and in how long they last. A single application usually has a modest impact, but applying to lots of lenders in a short space of time can make lenders think you already have lots of borrowing, or have been refused elsewhere⁴. Serious problems, such as a debt being written off, can affect your ability to obtain credit for up to six years⁵. This page explains what a loan does to your credit file at each stage: applying, borrowing, repaying, and falling behind.

What your credit file records about borrowing

Your credit file is a record of how you use borrowed money, held by credit reference agencies. If you have ever had a credit card, a loan or a mortgage, one of three main credit reference agencies holds a file on you⁹. The file is not a single national record: each agency holds its own version, and lenders may check any of them.

The file tracks a wide range of products, not just formal loans. It covers loans, credit cards, bank accounts, mobile phone contracts, car insurance paid in monthly instalments, and some utility companies¹⁰. It also holds information on your debts, bank accounts, credit cards and other credit, bills such as mobile phones, utilities and insurances, plus CCJs, decrees and insolvencies like bankruptcy.

In more detail, a credit file includes your personal details, what you owe, defaults, court action such as County Court judgments (CCJs), decrees or money judgements, home repossession, debts secured against an old address, and insolvencies¹¹. This is why a loan is never just between you and the lender: the record of it follows you to every future application for credit, and sometimes to other checks too, such as renting a home.

The file also records connections to other people. If you have a joint debt with an ex-partner, for example a mortgage or a loan, your credit files are connected, and how you each manage your debts can affect the other person's ability to get credit¹². Lenders can look at the other person's credit history when you apply for credit in your own name, because joint debts cause credit files to become linked or "associated"¹³. Being married or living together does not create this link on its own: lenders will not look into your partner's credit history merely because you are married or living together¹⁴.

Applying for a loan leaves a hard search on your file

When you apply for a loan, the lender will do a hard credit check, which leaves a footprint on your credit file¹. That footprint is visible to other lenders who check your file afterwards. One application is normal and expected; the problems start when applications stack up.

Citizens Advice warns that if you apply to lots of lenders this will leave a trail on your credit reference file, and this may affect your credit score, as lenders may think you already have lots of borrowing or have been refused by other creditors⁴. Which? makes the same point from the other direction: every time you make a credit application it gets recorded on your credit history, and unsuccessful applications can bring down your score¹⁵.

The effect is not limited to personal loans. Multiple applications for debt consolidation loans can affect your credit file, because lots of searches can make it harder to take out credit¹⁶. The same guidance notes that if you have lots of searches on your file, this can make it harder to take out credit¹⁷.

This is why the order of events matters when borrowing. Checking your eligibility first, using a soft search, avoids adding hard footprints before you know your chances. The section on soft searches and eligibility checks below covers how these work. For the wider picture of how lenders assess an application, see loan affordability checks.

How long a loan application affects your score

A hard search does not stay on your file forever, but the timescale is not uniform. Searches for applying for credit stay on your file for different times depending on which credit reference agency was used¹⁸. In other words, the three agencies do not all hold the search for the same period, so the effect of an application can fade from one file while still showing on another.

For more serious marks, the timescale is clearer. Getting a debt written off will have a negative impact on your credit reference file and may affect your ability to obtain credit for up to six years⁵. Six years is the standard horizon for the most damaging entries, and it runs from the event itself, not from when you notice it.

In practice, the impact of a single search tends to be concentrated in the months shortly after the application, when a lender sees recent activity. The record itself lingers longer than its effect on your score. There is no fixed number of points that a search costs: each lender scores files using its own method, so the same file can be scored differently by different lenders.

If you are planning a larger borrowing step, such as a mortgage, it is worth knowing that recent searches and new borrowing both feed into how a mortgage lender views you. Which? notes that every application is recorded and unsuccessful applications can bring down your score, which matters when preparing for a mortgage application¹⁵. See credit scores and credit reports for how to check your file before you apply.

A new loan adds to the credit you owe

Once a loan is accepted, it becomes part of the credit you owe, and that changes what your file says about you. Taking out a loan means taking out more credit, which could affect your credit score¹⁹. A lender reading your file sees the new balance, the monthly payment, and how much of your income it is likely to absorb.

Other borrowing behaves the same way. Your credit rating can be affected if you often go over your overdraft limit or owe too much on your overdraft²⁰. Missing payments or making reduced payments to a credit debt, such as a credit card, will affect your credit rating, making it harder to get credit again in the future²¹.

The people connected to you can be affected too. A "financial association" links your credit files, which means your record of making reduced payments may affect the other person's credit file and their ability to get credit²². If you have a financial connection with someone, like a joint account or joint mortgage, lenders may look at that person's report when judging your application for a new loan¹⁴. Being a guarantor works in the same direction: any defaults on the account or agreement are also added to the guarantor's file²³.

For joint borrowing specifically, see joint loans, and for standing behind someone else's loan, see guarantor loans.

Repaying on time can improve your credit file

A loan is not only a risk to your credit file. Once accepted for a loan, providing you make all your minimum repayments on time, this should improve your credit score in the long term². A steady record of payments is exactly the evidence lenders want to see, and a loan paid as agreed month after month builds that record.

The same principle applies to bills that feed into your file. Be aware that if you don't pay a bill on time, this could affect your credit rating and will appear on your credit file²⁴. Direct debits and standing orders are the usual way of keeping loan repayments on schedule, because they remove the risk of forgetting a due date.

The reverse is also true, and it is worth being clear about the line between the two. Your credit file will be affected any time you pay less than what you agreed to when you took out the debt²⁵. Making reduced payments towards a debt can impact your credit file, and this could make it hard for you to take out more credit²⁶. Making lower payments usually leads to your account defaulting²⁷. So the benefit comes from paying what you agreed, not from paying something.

There is a route back after problems. You can start improving your credit file as soon as you finish a debt payment programme (DPP)²⁸, which is the formal arrangement used in Scotland's Debt Arrangement Scheme. Improvement is not instant, but the file does not stay frozen: once the arrangement ends and normal payments resume or the debt is cleared, the record begins to age and rebuild.

Missed payments, defaults and CCJs

This is where a loan does real damage to a credit file. Missed payments go on your credit file and can make it harder to get credit in future and to remortgage⁶. The Bank of England states it plainly: failing to pay debts, whether secured or unsecured, can affect your credit rating²⁹.

The sequence usually runs like this. First a payment is missed or reduced, and that is recorded. Then, if the account stays behind, it defaults: your credit file will show that you did not make your agreed payments, which impacts your credit score³. If the lender then goes to court, a County Court judgment (CCJ) or, in Scotland, a decree or money judgment is recorded¹¹. Adverse credit is caused by missed payments, County Court Judgments (CCJs) and defaults³⁰.

The damage spreads beyond the loan itself. Missing payments to credit cards, unsecured loans, catalogues, overdrafts and store cards can affect your credit rating, which would make it harder to get credit in the future³². A CCJ will appear on your credit report, which is the information a credit reference agency provides to companies, and it will count against you if you apply for credit in the future⁷. Which? reports that a County Court Judgement (CCJ) or filing for bankruptcy will bring down your score significantly¹⁴. Northern Ireland's guidance makes the same point: a CCJ will count against you if you apply for credit in the future³³.

A CCJ can reach beyond borrowing. It might also be difficult to start renting a home from a private landlord or letting agent if you have a CCJ against you⁷. A bad credit rating can also affect your ability to rent a home, get a mobile phone contract or anything else that requires a credit check²⁹.

Payment breaks and holidays sit in a grey zone. The gap in payments from a payment holiday may be marked on your credit file and can make it harder to get credit in future³⁴. Shelter's guidance on missed mortgage payments notes that payment breaks can affect your credit score³⁵. During the coronavirus period the FCA issued temporary guidance under which a worsening status would not be reported to the customer's credit file in respect of any payment deferral taken under that guidance, though lenders could still take other information into account when making future lending decisions³⁶. That protection applied to deferrals under that specific guidance, not to every payment break a lender might offer.

Payday loans on your credit report

Payday loans are recorded like any other borrowing, and they carry an extra weight in how lenders read a file. Payday loans will also appear on your credit report, which could harm your chances of being accepted for a mortgage³⁷. A mortgage lender reading a file with payday loans on it may draw conclusions about how you manage money, even if every payday loan was repaid on time.

Missed payments make the position worse. If you miss a payment to your payday loan it will be recorded on your credit reference file³⁸. That record then works like any other missed payment: it shows on the file, drags the score down, and stays visible to future lenders.

The practical point is that a payday loan is not a private, small-scale transaction that leaves no trace. It is a credit agreement, reported to credit reference agencies, and visible to every lender that checks your file afterwards. For what payday loans cost and how the cap works, see payday lending and high-cost short-term credit, and for cheaper options, see payday lender or credit union loan.

Debt consolidation loans: short-term dip, possible longer-term effect

A debt consolidation loan rolls several debts into one, and its effect on a credit file runs in both directions. Taking out a loan means taking out more credit, which could affect your credit score¹⁹. Multiple applications for debt consolidation loans can affect your credit file, as lots of searches can make it harder to take out credit³⁹. So the application stage can cost you, especially if you try several lenders.

On the other side, a consolidation loan may help you repair your credit file over time, if you keep up with payments⁴⁰. The mechanism is the same as any loan: a single affordable payment made on time, month after month, builds the record that lenders want to see.

The risks sit in the middle. These loans can actually add to your debt or take longer to pay off⁴¹. If the cost of the new loan is hard to manage, and you miss payments, this will show on your credit file and affect your credit score⁴². And if you have poor credit, you may only be able to borrow at a higher interest rate, paying more back in total⁴³.

Soft searches and eligibility checks before you apply

Because hard searches leave footprints, many providers offer a way to test the water first. When you apply for a credit card it will leave a mark on your credit file, so if you apply and are rejected it will affect your chances of getting credit in future; providers offer a "soft search" eligibility check which does not impact your credit score⁴⁴. The same logic applies to loans: check you are eligible before applying, as applying for more credit may appear on your credit file⁴⁵.

A soft search shows you, and the provider, an indication of whether an application would be accepted, without adding a hard footprint that other lenders can see. Used before applying, it cuts down the number of failed applications, and therefore the number of hard searches, on your file.

The habit worth building is simple: check eligibility with a soft search first, then make one full application to the lender most likely to accept you. This is the opposite of applying to several lenders in the hope that one says yes, which is the pattern that leaves a trail on your file⁴. For how applications are assessed once made, see how to apply for a loan.

Where to get help if a loan has damaged your credit file

If a loan has already gone wrong, the help available falls into two kinds, and they affect your credit file differently. Debt advice does not affect your credit score, but some debt solutions do⁸. Talking to a free debt advice charity, or to MoneyHelper, costs nothing and leaves no mark: the conversation itself is not reported to credit reference agencies.

Formal arrangements are different. A temporary repayment plan involves making reduced payments towards a debt, which can impact your credit file and could make it hard for you to take out more credit²⁶. Arranging reduced payments with creditors directly has the same effect: your credit file will be affected any time you pay less than what you agreed to when you took out the debt²⁵. In Scotland, a Debt Payment Programme under the Debt Arrangement Scheme works similarly, and making lower payments usually leads to your account defaulting²⁷, though you can start improving your credit file as soon as you finish the programme²⁸.

The Financial Ombudsman Service makes a blunt point about timing: if you've already missed payments, any help you receive will impact your credit file⁴⁶. Help does not undo the missed payments already recorded; it changes what happens next. That is still worth having, because a managed arrangement stops the record getting worse, and every entry eventually ages off the file.

Where to turn:

1. Free debt advice: charities such as StepChange and National Debtline, and the MoneyHelper service, give free advice without affecting your credit score⁸. See debt: a complete guide.
2. Your lender: asking about a payment holiday or reduced payments early, before payments are missed, avoids some of the damage, though a payment break itself may be marked on your file³⁴.
3. The Financial Ombudsman Service: if you think a lender treated you unfairly, you can complain for free, and take it to the ombudsman if the lender does not put it right. See complaining about a lender.
4. Credit reference agencies: if something on your file is wrong, you can ask the agency to correct it. Checking your own file is free and leaves no mark.