What Credit Score Do You Need for a Personal Loan?

Lenders use credit scores to help assess how likely a borrower is to repay a loan on time. Higher scores are generally associated with a greater chance of approval, along with more favorable interest rates and terms.

In this article, we look at what’s considered a good credit score for a personal loan and the minimum score you may need to qualify.

What is generally considered a good credit score?

Credit scores typically range from 300 to 850, with higher scores indicating a stronger credit history and lower risk to lenders. A credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.

These scores are used by banks, credit unions, and online lenders to help decide whether to approve you for a loan, and what interest rate and terms to offer.^[1]

A good credit score generally starts at 670 on the FICO scale, which is the most commonly used scoring model, the full breakdown looks like this:^[2]

• 800–850: Exceptional – Well above the average score; demonstrates to lenders an exceptional level of creditworthiness
• 740–799: Very Good – Above average; indicates dependable credit behavior
• 670–739: Good – Near or slightly above the average; most lenders consider this an acceptable risk
• 580–669: Fair – Below average; may indicate some risk to lenders
• Below 580: Poor – Well below average; lenders may view this as a high-risk borrower.

While credit scores are an important factor in personal loan decisions, lenders usually consider other information too, such as income, employment history, and the amount of debt you already have.

Having a higher credit score typically makes it easier to qualify for a loan. It may also help you get better loan terms, such as a lower interest rate.^[1]

How do credit scores impact personal loan applications?

Credit scores are used to determine whether or not you qualify for a personal loan, with lenders using the score to determine how risky you are as a borrower. The higher your credit score, the less risky you are as a borrower.^[3]

In addition to eligibility, credit scores also impact the personal loan terms that you’re likely to get.

Here are some of the terms that a credit score may affect:^[3]

• Interest rates: A good credit score may improve your chances of a better interest rate.
• Loan amount: Higher credit scores may allow for a larger loan amount.
• Term length: Those with a fair credit score may be limited to short-term loans.
• Fees: Origination fees to cover the loan application may be applied and can vary depending on your credit score.

What credit score do you need for a personal loan?

You do not have a single credit score, each score depends on the data used to calculate it and this can differ depending on the scoring model that the lender uses, and even the day that it was calculated. Typically the higher the score, the easier it is to qualify for a loan and this may also result in a better interest rate and loan terms.^[1]

Let’s take a look at the minimum score you may need to qualify for a loan and what is considered a good credit score for a personal loan.

What is the minimum credit score for a loan?

The minimum credit score required for a personal loan varies by lender. If a lender requires a fair credit then it may be between 580 and 669, based on FICO scores.^[3] But having a higher credit score could make it easier to qualify for a loan. To qualify for a personal loan, you’ll typically need a credit score of 580.^[4]

What is a good credit score for a personal loan?

A credit score between 670 and 739 is generally considered good.^[4] Having a good credit score could help you qualify for a personal loan easier than someone with a fair credit score. Although you may not be accepted for the best interest rates and terms, as you might be with an excellent credit score.

Can those with bad credit get a personal loan?

Low credit scores (580 or less) may make it difficult to get a personal loan.Those with a score of 580 or less may need to do the following:^[3]

• Co-signer: Having a co-signer with a higher credit score may increase the chances of getting a loan. A co-signer is responsible for repaying the loan if the borrower defaults on payments.
• No-credit-check loan: No-credit-check loans are loans that do not require a credit check and may come with more flexible terms. These loans come with their own risks and high costs and are not permitted in some states. It is important to be sure of the terms before agreeing.
• Secured personal loan: Personal loans are typically unsecured, meaning they don’t require collateral. However, if you’re struggling to qualify, a secured personal loan may be an option, these require you to put down an asset like a vehicle, property, or cash, which can reduce the lender’s risk and improve chances of approval.

Other factors to qualify for a personal loan

Though credit scores are used as prediction of credit behavior, such as how likely a borrower is to make on-time payments, there are other factors that are factored into a personal loan application too.

Here are some of the other factors considered by personal loan lenders:^[4]

• Proof of income: Lenders may require verification of sufficient income. The minimum income amount will vary by lender and loan amount but either way, you can expect the lender to request proof of income (pay stubs, bank statements, tax returns, information about the employer, and gross monthly income).
• Debt-to-income ratio: Debt-to-income (DTI) ratios are calculated by adding up all monthly debts (credit cards, student loans, and mortgage payments etc.) and dividing by gross monthly income. Then multiply the result by 100 to get a percentage. Some lenders may require a DTI ratio below 36% while others allow a DTI ratio of up to 50%.
• Sufficient collateral: There are two types of personal loans – secured and unsecured. Secured requires collateral such as a vehicle or property whereas unsecured does not require collateral, which may increase the interest rate.

Ways to build credit before applying for a personal loan

Building your credit score can boost your chances of approval and help you qualify for better interest rates and terms.

Here are some steps recommended by the Consumer Financial Protection Bureau (CFPB):^[5]

• Make all payments on time: Your payment history is the single biggest factor in your credit score. Set up reminders or automatic payments if needed.
• Lower your credit card balances: Try to keep your credit utilization under 30% of your available credit limit. Paying down balances can give your score a quick lift.
• Limit new credit applications: Applying for multiple loans or credit cards in a short period can lead to hard inquiries, which may temporarily lower your score.
• Check your credit reports for errors: Visit AnnualCreditReport.com to get free copies of your reports. If you spot a mistake, file a dispute with the credit bureau.

Frequently Asked Questions

Can I get a personal loan without a credit score?

You might not have a credit score if there’s not enough recent credit activity to generate one, for example, if you’ve never used credit, haven’t used your accounts recently, or just opened your first account. This makes it challenging to apply for loans or credit – and lenders that do accept you may charge higher interest rates. Other borrowing options such as becoming an authorized user on a credit card, could help you start building credit. Once you establish a credit history, you may be more likely to qualify for a personal loan in the future.^[6]

Will applying for multiple loans hurt my credit?

Credit scoring models are aware that you might want to shop around for the best rate on a loan or credit and do not penalize you for doing so. A single credit inquiry will have little impact on your credit score. Generally, credit inquiries within 14 to 45 days are treated as a single inquiry.
If your comparison exceeds 45 days, or if you shop for two different types of loans such as mortgage loan and an auto loan, it may count as multiple credit inquiries.^[7]

Sources

1. Consumer Financial Protection Bureau. “What Is a Credit Score?” https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/.
2. myFICO. “Credit Scores: What Is a Credit Score?” https://www.myfico.com/credit-education/credit-scores.
3. Capital One. “What Credit Score Do You Need for a Personal Loan?” https://www.capitalone.com/learn-grow/money-management/credit-score-needed-for-personal-loan/.
4. Quicken Loans. “Personal Loan Requirements.” https://www.quickenloans.com/learn/personal-loan-requirements.
5. Consumer Financial Protection Bureau. “How Do I Get and Keep a Good Credit Score?” https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-and-keep-a-good-credit-score-en-318/.
6. Capital One. “Can You Get a Loan With No Credit?” https://www.capitalone.com/learn-grow/money-management/can-you-get-a-loan-with-no-credit/.
7. Consumer Financial Protection Bureau. “What Kind of Credit Inquiry Has No Effect on My Credit Score?” https://www.consumerfinance.gov/ask-cfpb/what-kind-of-credit-inquiry-has-no-effect-on-my-credit-score-en-321/.

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

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