Will a New Loan Pull Down Your Credit Score? Here’s What Experts Say

New Delhi, 24 November 2025: Borrowers noticed fresh score dips this quarter as banks tightened their review cycles. Latest TransUnion CIBIL data for Q1 FY26 (April–June 2025) shows rising downward score-migration and shrinking approvals for first-time borrowers. 

Many households are now asking: does taking a new loan reduce your credit score?

According to Indian lending guidance, a hard enquiry made during a loan application can reduce a CIBIL score by around 5–10 points. This impact has become more noticeable as lenders tightened checks on personal and unsecured loans. Banks, NBFCs and fintech lenders also increased their reliance on automated, bureau-linked decision systems from mid-2025, adding further pressure on applicants.

CIBIL’s fresh numbers highlight the shift clearly. About 25% of all borrower score movements in Q1 FY26 were downgrades, compared with 23% in the same quarter last year. The share of New-to-Credit (NTC) borrowers fell to 16%, down from 18% a year earlier, showing lenders’ caution towards first-time loan applicants.

Recent Checks And Why Borrowers Experienced Score Drops?

Banks increased their verification steps in October after new RBI compliance directions became effective. This applied to major lenders such as State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Bank of Baroda, and all other Scheduled Commercial Banks and NBFCs. These checks were a part of RBI’s updated rules issued during September–October 2025.

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Personal loans above certain levels were checked more closely because they crossed RBI’s Loan-to-Income (LTI) limits and score-based norms introduced in 2025. RBI’s consumer-credit guidelines state that a borrower’s total EMIs (existing EMI + new EMI) should generally not cross about 50% of their monthly income. This is known as the Loan-to-Income (LTI) limit. These limits are set by the regulator, not by individual banks.

When borrowers applied for personal loans near or above these limits, lenders carried out extra bureau pulls, which increased the number of hard enquiries.

A clearer view of these developments becomes easier when supported by government-based sources.

The table above highlights why banks acted firmly this quarter. Borrowers noticed delays and drops mainly due to the clustering of checks triggered by the compliance review cycle.

What Credit Score Dip Means And How Models React?

A score shift occurs when the lender checks the report and a hard inquiry is added. In India, a single hard inquiry usually reduces the score by about 5–10 points, as explained in multiple lender and bureau-education guides.

Once a new loan account is opened, the average age of credit becomes lower because a new account is added to the borrower’s profile. The scoring design has remained stable for years and influences all lending segments, including personal loans, credit cards and consumer credit.

One set of numbers gained wide attention this year. LoansJagat mentioned that one hard inquiry could lower a CIBIL score by 5 to 10 points, while three loan or card applications within two months could reduce the score by 15 to 30 points. This range helped borrowers understand how clustered applications can create stronger effects.

It is important to note that bureaus follow uniform treatment for all loan categories unless directed by a regulator.

The table explains how the system responds to loan entries. These rules shape the movement seen by applicants this quarter.

This pattern was seen earlier during the festive cycle. A previous analysis titled Banks tighten small-ticket loan norms after spike in retail defaults livemint reported how lenders increased checks due to rising stress in consumer credit.

How Governments And Banks Acted During Similar Phases In The Past?

Government departments addressed this matter through periodic advisories. The Ministry of Finance encouraged regular review of credit bureau entries during the 2023 financial inclusion plan. RBI also reminded banks to provide clear communication when applications were rejected due to report issues. These steps aimed to reduce confusion among new borrowers.

Also Read - Credit Report Mistakes That Lower Scores and Cause Loan Rejections in India

Banks responded in different ways during each season. During late 2023, some lenders eased checks to support festive spending. In contrast, this year brought a stronger verification push once audit alerts surfaced. This shift explains why fresh loan applications produced score dips for many applicants this month.

Conclusion

The discussion brings the focus back to the core question. The impact of a new loan on credit score remains small for most individuals unless multiple applications are placed in short intervals. Steady repayment usually helps the score recover within months.

The effect stays short lived for disciplined borrowers. The rise in hard checks this quarter came due to internal audits, and the pattern mirrors earlier cycles. Clear communication by lenders and timely payments continue to influence long-term credit strength.