How a Personal Loan Saved Me $4,000 and Raised My Credit Score by 50 Points


We’ve all heard about the benefits of personal loans, so here’s my own experience.

First, here’s the story of why I ended up taking out a personal loan.

A few years ago, my wife and I decided to buy our “forever” house. There was nothing wrong with the house we had been living in, other than that it was too small for more than the two of us. We had recently learned that my wife was pregnant with our first child, and we knew we weren’t going to stop at one — and the thought of moving when we already had little kids wasn’t too appealing. (If you don’t have kids yet, spoiler alert — they have lots of stuff!)

Anyway, to make a long story short, the house we bought had more than twice the square footage of our former home, and this meant that we had lots of extra space to furnish. I found excellent 0% financing deals on furniture for the baby’s room, our living room, my office, and other spaces. And because the house has an excellent “man cave” room, I splurged on a nice TV and sound system, which was also at 0% interest for a while.

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Well, fast-forward about a year, and although I had paid down a bunch of this debt, there was still a significant balance outstanding and the 0% APRs were all about to come to an end. I had been curious about the personal loan offers I kept seeing in my mailbox, and since I had a good credit score, I decided to see what I could get.

I ended up obtaining a personal loan to pay off the remaining balances from the moving-related debt as well as some other debts we had incurred during our first year as parents. The existing credit card debt would have had APRs ranging from 16% to 29% if I had kept it as-is, but I was able to get a personal loan with an APR of about 7% for three years.

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How much did I save?

There are two main potential benefits of taking out a personal loan — saving money and improving your credit. First, here’s a discussion of the savings.

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Assuming that I would have paid the debts off in a three-year time period either way, the lower APR I obtained with a personal loan saved me a total of more than $4,000 in interest. That’s a significant amount of money.

What happened to my credit score?

The other side of the equation is that my credit score went up significantly. And fast.

There are two main reasons for this. First, installment loans are generally considered more favorably than revolving debts, such as credit cards. Second, by moving my debts to a personal loan and keeping the existing credit accounts opened (but with no balance), it greatly improved my credit utilization.

As I mentioned, my credit score was already good — about a 730 FICO® Score — prior to taking out the loan. This is significantly above average but isn’t quite top-notch credit. Well, two months after I took out my personal loan, I checked again — my credit score was now in the 770–780 range, depending on which of the three credit bureaus I was looking at.

That’s a big jump. My new median score of 775 put me well into the excellent credit realm.

Every situation is different

To be clear, this is just my personal experience, and every credit situation is different. The savings you’ll get from a personal loan (if any) depends on several factors such as your current credit score, the interest rates on your other debts, and more. And the impact to your credit depends on a ton of different variables as well — far too many to even begin to list them all here.

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Generally speaking, a personal loan can save you money and help improve your credit. However, it’s important to realize that this is just a general rule and doesn’t apply in every situation. You won’t know for sure how much you could save with a personal loan until you apply, and you won’t know the impact to your credit until after you’ve already obtained a loan of your own.

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