What Credit Score Is Needed for a Personal Loan?
Personal loans can be used for just about anything, like consolidating credit cards, financing a home project and paying off medical bills.
The minimum credit score needed for a personal loan is typically 580, though the best loan terms are usually reserved for people with a credit score of 640 and above. There are also ways to secure a loan with a lower credit score, and this article will break it all down for you.
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What is the minimum credit score requirement for obtaining a personal loan?
Your credit score significantly impacts your eligibility for a personal loan, influencing loan amount and interest rate. There’s no universal minimum credit score for personal loans; it varies by lender. Some may approve loans for scores as low as 580 or even 300, but scores above 640 often secure the best terms. Keep in mind that your credit score isn’t a single number but varies based on different scoring models and lender calculations.
A higher score usually leads to better loan terms. It’s calculated from your credit report, considering factors like payment history, credit duration, credit utilization, and loan diversity. Scores typically range from 300 to 850, using systems like FICO and VantageScore.
The basics of credit scores and personal loans
The FICO Score is the most widely used credit score. It was created in 1989 and is used by 90% of lenders. It is calculated independently by each of the three major credit bureaus, so your FICO Score can vary depending on which credit report is used to calculate it.
The VantageScore is a newer model that aggregates data across all three credit bureaus, meaning that you only have one VantageScore. It is similar to FICO in terms of what it looks at, but it can help you build credit quicker and it puts less weight on things like hard inquiries and collections that have been paid.
They both produce a score ranging from 300-850, though there are some differences in what those scores mean. The following table breaks it down:
| FICO Score | VantageScore |
|---|---|
|
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Where you fall in that table will largely dictate which personal loan offers are available to you. The good news is that there are personal loans available for just about any type of credit, and the following tools can help you find the right one for you:
- Best personal loans for excellent credit
- Best personal loans for fair credit
- Best personal loans for bad credit
If you’re really in a fix and have very bad credit, a payday loan can offer you a small amount of money without a credit check. These are incredibly expensive though, with annual percentage rates (APRs) up to 400%. They also have short repayment periods, typically around two to four weeks, with a new round of fees if you can’t pay on time. They’re incredibly risky and should generally be avoided as anything other than a last resort. Credit unions offer their own alternative to payday loans called payday alternative loans, which have better terms.
Personal loan averages by credit score
So what does your credit score really say about the kind of personal loan you can qualify for? It always depends on all the specifics of your situation, but a higher credit score typically means that you can qualify for a lower interest rate and a larger loan.
The following table breaks down the average loan amount and interest rate by credit score for people who got a personal loan through LendingTree.
| Credit score range | Average APR | Average loan amount |
|---|---|---|
| 720+ | 14.34% | $19,657.52 |
| 680-719 | 21.19% | $16,032.83 |
| 660-679 | 32.30% | $12,392.46 |
| 640-659 | 44.50% | $10,010.65 |
| 620-639 | 62.90% | $6,881.93 |
| 580-619 | 89.86% | $4,811.89 |
| 560-579 | 125.18% | $3,147.46 |
| Less than 560 | 165.30% | $2,568.42 |
Source: LendingTree user data on closed personal loans for the first quarter of 2023
Other factors in getting a personal loan
While your credit score is the most important factor in a personal loan application, it’s not the only thing that lenders look at. Here are some other personal loan requirements that lenders consider, as well as some factors that could help you be approved for a loan even with a low credit score.
- Income: Lenders want to know that you can afford to make payments on your loan and will check your income to ensure you have enough money coming in. This could be income from a job, or it could be Social Security, government benefits, or withdrawals from retirement accounts.
- Debt-to-income ratio: Your debt-to-income ratio is calculated as your total monthly debt payment divided by your gross monthly income. A lower debt-to-income (DTI) ratio means that less of your income is currently going towards debt, which indicates that you’re more likely to be able to afford a new loan. Lenders typically like to see a debt-to-income ratio of 35% or below.
- Collateral, if applicable: Most personal loans are unsecured, which means that the lender just has to rely on you repaying the loan. But if you don’t have good credit, you could apply for a secured loan instead in which you use your car or a savings account as collateral. If you can’t repay your loan, the lender can take that collateral to make themselves whole.
- Joint applicants: Another strategy for borrowers with bad credit, or borrowers who want better loan terms, is to consider a personal loan with a cosigner. Adding someone with good credit can make you more likely to qualify for a personal loan, though your cosigner needs to be aware that they are just as responsible for repaying the loan as you are.
- Loan amount: Larger loan amounts represent higher risk, and therefore typically come with a higher interest rate. The less you have to borrow, the less you’ll typically have to pay.
Repayment timeline: Shorter repayment periods will typically have lower interest rates, though you will also typically have to make higher monthly loan payments. If you can afford the monthly payments, however, you’ll save money in the long run.