I have a (hopefully) simple question.

In terms of a credit check (for a mortgage or similar) would a current half-paid personal loan for several thousand dollars look better or worse than several smaller unpaid debts?

  • 4
    By "unpaid" do you mean past due? Or do you mean tom compare 1 big loan vs multiple small loans that you are current on?
    – TTT
    Commented Jul 31, 2017 at 4:55
  • From the title I would assume past due. I'm unsure of NZ particulars, but in the US you should be wary of simply paying off collections that appear on a credit report, because a "paid" collection negatively affects your score. If you're considering a loan to pay off collection accounts, you may end up with a lower score overall.
    – Rakurai
    Commented Jul 31, 2017 at 13:07
  • I have no collections at present, but a few payments are stacking up and there's a risk that one or two might become collections.
    – Wompguinea
    Commented Aug 1, 2017 at 21:10

1 Answer 1


Based on the clarification in the comments, it sounds like you are on the verge of accumulating some late payments and/or collections, and are considering taking out a loan to prevent that from happening. You are therefore wondering which will hurt your credit more- the new personal loan or the smaller late payments?

You definitely want to avoid late payments and accounts going into collections if at all possible. The reason is that they will stay on your credit report and affect your score negatively for at least 7 years. Any debts that are current (at least minimum payments are being made on time) will only affect your score while the debt exists. Within 30 days of those debts being paid your credit score will immediately shoot back up.

So then, if you need to take out a loan in order to prevent from being late on your current debt payments, I would strongly consider it, with the following conditions:

  1. The new loan should pay off the existing debt.
  2. The total payments for the new loan should be lower than your existing debt payments. (If they would be the same amount or higher, then you're just going to have late payments on the new loan, which doesn't really help you.)

Note that the only way to accomplish #2 is for the interest rate to be lower, and/or for the repayment term to be increased. If you are simply increasing the term, I hope you are considering making a lifestyle change to compensate for this, or else you're just kicking the can down the road.

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