Credit scores and personal loan eligibility

If you need cash to fund a project or pay a bill, a personal loan can help. Whether or not you're eligible for one will depend largely on your credit score, and the minimum requirements will vary among lenders.

Required minimum credit score for a personal loan

Generally, lenders require a minimum credit score for a personal loan to be in the mid-600s to qualify, though some will lend to borrowers with lower credit scores. The better your credit score, the better your interest rate should be. If your credit is poor, check out the best personal loans for bad credit.

Just because you don't qualify with one lender doesn't mean you won't qualify with another. Here are examples of the minimum credit scores required for the best online personal loans.

Other factors influencing personal loan terms

However, your credit score isn't the only thing to consider when trying to get a personal loan. Lenders will also consider your debt-to-income ratio — the amount of debt you owe each month in relation to your gross monthly income — and employment status, among other financial factors.

Also, note that each lender has its own particular rules. For example, with US Bank personal loans, the minimum credit score for a personal loan is 680 for existing customers. Still, there's a separate, higher minimum for non-customers that the bank doesn't disclose. 

Average personal loan rates by credit score

A higher credit score generally means you'll receive a lower rate, but not always.

The difference in interest rates for someone with an excellent credit score versus someone with a poor credit score can be significant. And the higher rates significantly drive up the overall cost of a loan for poor-credit borrowers.

For example, looking at average personal loan interest rates this year, borrowers with excellent credit scores (720 or higher) got rates of around 20%, while those with poor credit scores (less than 620) paid almost 177%.

The average rates (APRs), terms, and loan amounts were sourced through Fiona.com. This information is based on aggregated, anonymized offer data from Fiona's lender marketplace of financial services providers as of  July 10. The data presented in this table applies only to lenders with APRs below 30% and is not specific to any individual lender or consumer. 

Why do lenders check your credit score?

Lenders use your credit score to determine the level of risk involved with lending you money. For instance, if you make payments on time and don't max out your credit cards, this tells lenders that you know how to manage debt and are a reliable borrower. So, when it comes to personal loans and credit score, the higher your credit score, the more likely you are to qualify for more favorable terms because the lender views you as a lower risk.

Your credit score takes into consideration several factors. These factors commonly include:

• Payment history
• Credit balance
• Length of credit history
• New credit
• Credit mix

Payment history and credit balance comprise the bulk of your credit score, with payment history being 35% and credit balance being 30%. Additionally, length of credit history makes up 15%, credit mix 10%, and new credit 10%.

However, you should know that lenders look at more than just your credit score. Lenders typically review your full credit report, which includes your credit score and gives them a more detailed summary of your financial track record.

Improving your credit score for a personal loan

If you don't qualify for a loan from any lender and you're trying to get a loan with bad credit, you can try to increase your credit score to increase your likelihood of approval. Additionally, improving your credit score can net you better terms on your loan.

How to check your credit score

To get your credit report from the three major credit bureaus, use annualcreditreport.com. While you won't receive your credit score in these reports, you'll get information about your credit and payment history. While reviewing your credit report, you can spot errors and figure out where you can improve.

You can usually check your credit score for free on your credit card statement or online account. You can also purchase it from a credit reporting agency. Before submitting a full application, many lenders will also allow you to prequalify for a personal loan, which has no impact on your credit score.

How to improve your credit score before applying

If you have a low credit score and lenders have denied your loan applications, here are some steps you can take to boost your credit score:

• Request a copy of your credit report. Look for any mistakes on your report that could be damaging your score. If necessary, contact the credit bureau to discuss fixing the error.
• Maintain low credit card balances. Having a credit utilization ratio — the percentage of your total credit you're using — of 30% or less will prove to lenders that you can handle your credit well.
• Create a system for paying bills on time. Your payment history makes up a substantial percentage of your credit score, and lenders like to see steady and reliable payments in the past. Set up calendar reminders or automatic payments so you don't fall behind.

If you can wait to take out a personal loan until you increase your credit score, you may qualify to borrow with more lenders and be eligible for better rates.

How personal loans work

A personal loan is a lump sum of money you can borrow for various reasons, including as home improvement loans, to pay off medical bills, debt consolidation loans, and even to finance vacations. You'll repay the loan in fixed monthly installments, and it usually comes with a fixed interest rate. The amount you can borrow typically ranges from $1,000 to $100,000.

Most personal loans are unsecured, which means you don't have to put up any collateral. Average personal loan interest rates tend to be higher than rates on secured loans like mortgages and auto loans and are roughly comparable to credit card interest rates if you have a lower credit score.

If you need a personal loan, you should start by shopping around with different lenders and seeing which lender offers you the best terms on a loan.

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FAQs about personal loan credit score requirements