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What Credit Score Do You Need for a Personal Loan?

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Personal loans are a unique financial product. Most can be used in any manner you can imagine, and can be tailored to fit your monthly budget. If you're on the lookout for a personal loan, you're probably curious about the minimum credit score required. Here, we focus on the score you'll need to land a loan and what you can do to improve your credit score if it's not quite where you need it to be.

What should my credit score be for a personal loan?

You'll typically need a score of at least 550 to 580 to qualify for a personal loan.

Here's a breakdown of how your credit score impacts your personal loan:

Below 579: Personal loans for bad credit

You can find personal loans for bad credit, but:

  • You'll likely pay a higher interest rate than other borrowers
  • You probably won't qualify for larger loan amounts

If your credit score is below 580, consider raising your credit score before taking out a new loan.

580 to 669: Personal loans for fair credit

If your credit score is fair, you can expect:

  • Better interest rates than loans for bad credit
  • May not be able to borrow as much money as a good-credit borrower could

If you get a fair credit loan, make sure you pay it off as soon as possible. Otherwise, you'll pay quite a bit in interest.

670 to 739: Personal loans for good credit

There are a variety of lender options for personal loans for good credit. If you have good credit:

  • You'll be able to borrow more money
  • You'll be approved for a lower interest rate

Since lenders offer low rates for borrowers with good credit, it can be tempting to skip rate shopping if you have good credit. Don't skip this step -- lowering your interest by just one percentage point can save you hundreds of dollars.

740 and above: Personal loans for excellent credit

You shouldn't have much trouble finding a personal loan with a credit score in this range. You'll likely qualify for loans and be able to secure a low interest rate with most or all of the best personal loan lenders.

LEARN MORE:What credit score do you need for a car loan?

Why your credit score for a personal loan matters

Loan eligibility depends on your credit score. A high credit score tells a lender that you have a history of managing money well. A lower credit score indicates that you've hit a rough patch. A financial institution is naturally more comfortable lending to a borrower with a strong credit history.

The impact of your credit score for a personal loan

The minimum required credit score for a personal loan may get you in the door, but individuals with higher credit scores tend to have better loan options.

When you apply for a personal loan, your credit score helps determine whether the lender approves your loan application. It also influences the amount of your loan and the interest rate the lender offers. If you're a borrower with a higher credit score, you're more likely to receive an attractive loan offer, including a low interest rate and repayment term that works with your monthly budget.

Think of the things you would do if you had access to a personal loan with a low interest rate. Do you have a high-interest credit card balance you would pay off or loan debt that's holding you back? Whether you want to use a personal loan for debt consolidation or to put a swimming pool in the backyard, it's easier with a strong credit score. That said, even if your credit score is less than perfect, you have options.

What to do if you have bad credit

If you have a bad credit score (FICO® Score below 580) and you need a loan, there are several options to consider:

  1. Raise your credit score
  2. Apply for a bad credit loan
  3. Prequalify with several lenders
  4. Find a cosigner
  5. Offer collateral (get a secured loan)

We'll cover each of these in detail below.

Raise your credit score

It's a good idea to get your score as high as possible before you apply for a personal loan. Remember, the higher the credit score for a personal loan, the more likely it is your lender will approve a low interest rate.

The fastest way to raise your credit is paying off debt. You can also check for errors on your credit report. The three credit bureaus -- Equifax, Experian, and TransUnion -- are each legally required to provide you with one free copy of your credit report per year upon request. Read through your credit reports, and if you find a mistake, notify the credit bureau that issued the report.

Apply for a bad credit loan

There are lenders that offer personal loans for borrowers with low credit. If your credit score is below 600, you're considered either "fair credit" or "poor credit":

Credit score below 579: look for personal loans for bad credit.

Credit score 580 to 669: look for personal loans for fair credit.

Even the best personal loan for bad credit will come with a relatively high interest rate, but paying off your personal loan will raise your credit score. So the next time you need to borrow, your credit score should be in a higher range and you will likely qualify for better personal loan interest rates.

Prequalify with several lenders

You can compare personal loans by getting prequalified with several lenders. When you get prequalified with a personal loan lender, the lender shows you what kind of rates and terms you could qualify for based on your specific situation. This won't have an impact on your credit score.

Once you fill out a personal loan application, a lender will examine your credit history to determine how likely you are to repay the loan. In addition to checking your payment history, they will check your credit utilization ratio. Credit utilization is calculated by dividing your monthly debt by your income.

Let's say your monthly bills amount to $2,100 and your income is $6,000. Your credit utilization ratio would be 35% ($2,100 ÷ $6,000 = 0.35). Here's why that matters: The lower your credit utilization, the more comfortable lenders are about granting loan approval.

When you prequalify with multiple lenders, you can also compare fees. For example, one lender might offer a lower interest rate -- but charge a hefty origination fee. Pay attention to annual percentage rates (APRs) of different loans: The APR of a loan combines interest rate with fees to give you the true cost of a loan. Getting all the details ahead of time empowers you to go with the personal loan option that costs the least overall.

Once you've compared rates this way, you'll know exactly which lender to choose so you get the best terms on your loan.

Find a cosigner

If you have a personal loan cosigner, that person's financial information and credit score could help you to qualify for a loan or receive better terms than you would on your own. That's because your cosigner will have the same level of responsibility as you on the loan.

This is an excellent way to get a good interest rate and attractive loan term, even if your credit score for a personal loan is low.

Offer collateral (get a secured loan)

One final option is to take out a secured loan against an asset where you've built up equity. Here are a few such options:

  • A home equity line of credit (HELOC) where you take out a line of credit using the equity in your home.
  • An auto equity loan where you take out a loan using equity in your car.
  • A 401(k) loan where you borrow against your 401(k).

With a secured loan, you risk whatever you use as collateral. For example, with HELOCs and auto equity loans, you're putting your home or your car at risk should you default. Only take out a secured personal loan if you're confident you can make the monthly payment on time.

401(k) loans usually require you to have payments automatically deducted from your paycheck, but if you don't stick to the repayment plan, it could be costly. For example, if you lose your job and can't pay the loan back within five years, the loan could be considered a distribution. At that point, you'd likely owe taxes on it as well as a 10% early withdrawal penalty.

What about no-credit-check loans?

There are certain types of personal loans that don't require a credit check. Payday loans and car title loans are two common examples. You could get one of these no matter your credit score. However, they are short-term loans that tend to have very high interest rates, with APRs often exceeding 400%.

No-credit-check loans are a poor choice in all but the most desperate of situations. And even then, it's best to consider other options, like a loan from a family member or getting a loan with a cosigner. Even if you don't have a good credit score, avoid getting a payday loan or other no credit-check loan at all costs.

The bottom line

There's an unsecured personal loan available for just about every credit score and even some that don't require a credit check at all. The minimum credit score for a personal loan varies depending on the lender -- and that means you have options. If you absolutely need a loan, you can probably get one.

Your credit score will, however, determine the loan options available to you and how much interest you end up paying. For that reason, it's in your best interest to work on your credit score as much as you can and then shop around for the best low interest personal loans.

Every bit of progress you make toward achieving the highest possible credit score for a personal loan will open up more options for personal loan providers -- and potentially help you qualify for lower interest rates. That can make a big difference in how much you pay in total for your loan, especially if you need to borrow a large amount of money.

Still have questions?

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