Can I perform a factory reset to fix this issue? If so, how?
Yes, of course. Follow the tag wiki of recovery-mode to know the various key combinations. One of them would help you to boot into your device's recovery mode. Most likely, it would either be Volume Up + Power button or Volume Down + Power button. When the device is turned off, long-press them simultaneously for few seconds until the device starts to boot. If you successfully boot into recovery mode, you would see an option to wipe data or factory reset. Use it.
Will doing so affect the normal operation of my phone.
Under normal circumstances (that is, device is not flashed by user other than through OTA), after factory reset the state of the software in device would be same as having it bought from a shop. No user data to be found anywhere - that includes your contacts and all user installed apps as well.