Personal Loans? Here's How They Boost Credit (2026)

Whether you're looking to consolidate debt, fund a major purchase, or simply improve your credit score, understanding how personal loans impact your financial health is crucial. Many Australians find themselves asking, "Are personal loans good for credit?" The answer isn't always straightforward, but with the right knowledge and strategy, a personal loan can indeed serve as a valuable tool in managing your credit profile. Let’s delve into the details to help you make an informed decision.

Understanding Personal Loans and Credit Scores

Personal loans can be a double-edged sword when it comes to your credit score. On one hand, they provide an opportunity to diversify your credit mix, which can positively impact your credit rating. On the other, they add to your debt load, which could be detrimental if not managed properly. The key is to understand how personal loans work within the context of your overall financial picture.

When you take out a personal loan, you borrow a specific amount of money from a lender, which you agree to pay back over a set period with interest. These loans can be secured or unsecured, with unsecured loans typically having higher interest rates. Your credit score is influenced by a number of factors, including your payment history, amounts owed, length of credit history, new credit, and types of credit in use.

Interest Rates, Requirements, and Options

In 2026, the personal loan market in Australia is competitive, with interest rates ranging from 6.49% to 12% depending on your creditworthiness and the lender. Esteb and Co, with access to over 83 lenders, offer a variety of options tailored to different needs and financial situations.

Eligibility for personal loans typically requires a stable income, a satisfactory credit history, and in some cases, a minimum credit score. Each lender has its own set of criteria, and it's crucial to compare these to find the best fit for your financial situation.

Steps to Using a Personal Loan to Improve Your Credit

1. Assess Your Financial Situation: Before applying for a personal loan, review your financial health. Consider your existing debts, income, and expenses to determine how much you can afford to borrow and repay comfortably.

2. Check Your Credit Report: Obtain a copy of your credit report to understand your current score and identify areas for improvement. Correct any errors that could be negatively impacting your score.

3. Research and Compare Lenders: Use resources like Esteb and Co to compare offers from multiple lenders. Look for competitive interest rates and terms that align with your repayment ability.

4. Create a Repayment Plan: Develop a realistic plan to repay the loan on time. Consistently making payments will positively impact your payment history, a significant component of your credit score.

5. Monitor Your Credit Score: Regularly check your credit score to track improvements and ensure that the loan is having the desired effect on your credit profile.

Expert Tips and Considerations

While personal loans can be beneficial, they require careful consideration and management to avoid potential pitfalls. Here are some expert tips:

• Avoid Borrowing More Than You Need: It can be tempting to borrow a larger amount, but only take what you truly need to keep your debt manageable.
• Be Wary of Fees: Some personal loans come with hidden fees such as origination fees, late payment fees, or early repayment penalties. Make sure you understand all costs involved before committing.
• Consider Your Long-Term Goals: Ensure that taking out a personal loan aligns with your broader financial objectives. If the loan doesn't serve a strategic purpose, it might not be worth pursuing.
• Maintain a Good Credit Utilisation Ratio: Try to keep your credit utilisation below 30% of your available credit to maintain a healthy credit score.

Frequently Asked Questions

1. Can a personal loan improve my credit score?

Yes, if managed properly, a personal loan can improve your credit score by adding to your credit mix and helping you build a positive payment history.

2. How long does it take for a personal loan to affect my credit score?

Typically, you may start to see changes in your credit score within a few months of taking out a personal loan, as long as you make all payments on time.

3. What is the best way to use a personal loan for debt consolidation?

To consolidate debt, use a personal loan to pay off higher-interest debts. This can simplify your payments and potentially reduce the overall interest you pay.

4. Are there risks associated with personal loans?

Yes, risks include potential debt accumulation, high interest rates, and the impact of missed payments on your credit score. It's important to have a repayment plan in place.

5. Can I apply for a personal loan if I have bad credit?

While it's more challenging, some lenders offer personal loans to individuals with bad credit. You'll likely face higher interest rates, but Esteb and Co can help you find suitable options from their panel of lenders.