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Credit Score For A Personal Loan: What Do You Need?

Hanna Kielar6-Minute Read
UPDATED: May 17, 2023


Qualifying for a personal loan depends largely on the borrower’s credit score since these loans are typically unsecured by any collateral. How high or low your credit score is will affect what you pay in interest for the life of the loan, so it can be helpful to know what goes into calculating your score.

Below, we’ll break down credit requirements for personal loans, and explore good credit and how you achieve it.

What Credit Score Is Needed For A Personal Loan?

People use personal loans for a variety of reasons. These include debt consolidation, paying for home improvements and financing a big purchase.

Typically, the minimum credit score for a personal loan approval is 610 – 640. To get approved for a loan with good terms, though, you’ll want a credit score of 650 or higher. Each personal loan gets evaluated on an individual basis, and requirements vary by lender.

The accepted credit score range may be influenced a bit based on whether you have a previous relationship with the lender. If you worked with the lender in the past and established a good payment history, they may be more flexible with their offer.

Why A Certain Credit Score Is Required For A Personal Loan

Today’s system for judging one’s creditworthiness involves the credit bureaus Experian™, Equifax® and TransUnion®.

These bureaus gather data around your financial history, including loan and credit payments. As for the credit scoring standard, two other entities – FICO® and VantageScore® – take all this information and turn it into a number used to help evaluate where applicants stand.

FICO® is the credit score accepted by most lenders, while VantageScore® is a competing system that aims to give consumers more insight into what’s affecting their score so they can improve it. Although not identical to the FICO® formula, VantageScore® is similar enough to offer actionable steps to better credit.

When you check your own credit, you’re typically getting a VantageScore.

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What Makes Up Your Credit Score And Personal Loan Eligibility?

While the real formulas that make up a FICO® Score are a bit of a mystery, the weight given to each factor that goes into your score is easily accessible. Below are the factors that impact your FICO® Score and how much weight they carry.

1. Payment History (35%)

This one is the most straightforward. If you regularly make your payments on time, it’s good for your credit score. Payments that are 30 or more days late? Not so much. Also included in this category are potential negative marks like charge-offs, collections and bankruptcies. While charge-offs and collections remain on your report for 7 years, a bankruptcy may stay there for 7 or 10 years, depending on the type of bankruptcy you filed.

2. Amounts Owed (30%)

The category with the second-highest impact on your credit score is the amount owed on your debt. On a monthly basis, this is where you exert the most control over your credit score. The reasoning for this is pretty simple.

What you can control is the amount of spending you have on items like credit cards and other lines of credit. It’s best to use your accounts regularly but not so much that it looks like you’re overextending yourself. As a general rule, you don’t want to utilize more than 30% of your credit limit.

So, if you had $10,000 in overall limits, you wouldn’t want to have a balance of more than $3,000 at any given time. If you have to carry a balance, try to keep it as low as possible to avoid paying more than necessary. And remember, credit cards tend to come with high interest rates.

3. Length Of Credit History (15%)

If you have a long history of making on-time payments with a varied mix of revolving and installment loans, you’ll have a better credit score than someone just starting out.

4. Credit Mix (10%)

Lenders want to see a mix of installment loans like car payments, personal loans and student loans. Lenders also like to see revolving accounts such as those for credit cards. This combination shows that you can responsibly handle different types of debt, and you’ll increase the lender’s confidence that you can repay your loan.

5. New Credit (10%)

Every time you get a new loan or credit card, your credit score takes a temporary hit. However, if you make your payments on time and pay balances down or off, your credit score should go back up within 3 months or so.

How Your Credit Score Affects Your Personal Loan Approval

Now that you know the essentials of credit scores and how they’re calculated, let’s look at how your score will impact your odds of obtaining a personal loan. Simply put: The better your credit, the better rates and terms you’ll be able to get – and the better your chances will be of getting approved. Your score can also affect what loan amount you’re approved for.

When lenders look at your options for any loan or line of credit, including personal loans, they pay attention to two factors that are very specific to your credit: your credit score and your debt-to-income ratio (DTI). Let’s take a quick look at both.

Which FICO® Score Counts?

We’ve touched on FICO® Score importance, but it’s also important to understand how it works regarding loan approval. One way lenders may look at your score is by taking the median credit score from the three bureaus for qualification purposes. If you have two or more co-borrowers qualifying for a loan, lenders would then take the lowest median score.

As an example, let’s say you’re applying with a co-signer for a loan. If you have credit scores of 720, 700 and 690, and your co-signer has scores of 660, 640 and 620, the score that counts for qualification purposes is 640.

In some cases, other lenders may only look at scores from one or two bureaus. If two bureaus are considered for credit qualification, the lender will probably take the lower of the two scores for qualification purposes.

Understanding Debt-To-Income Ratio

Your DTI is another important item that has a big impact on whether you’re approved. DTI looks at your monthly payments on installment debt like mortgages, car payments and student loans along with your minimum monthly payments on credit cards or other lines of credit. This kind of debt then gets compared with your gross monthly income. The formula is as follows:

Installment Debt + Revolving Debt Payments / Gross Monthly Income

Let’s look at a quick example. You have a monthly income of $4,000. Between several accounts, the combined minimum payment on your credit cards is $200. Your revolving debt is a car payment of $300, student loan payments of $400 and a $950 mortgage payment. This makes your DTI 46.25% ($1,850/$4,000).

Although lenders evaluate loans on an individual basis, in general, the lower your DTI, the better your chance of qualifying for a loan. It’s important to note that if you have a relationship with the lender or one of its affiliates, you may be able to qualify with a slightly higher DTI if you have a history of making your loan payments on time. Other factors, like whether you’re self-employed, can play a role as well, so there’s no one-size-fits-all formula.

Use Our Debt-To-Income Calculator To Find Your DTI

How A Personal Loan Can Affect Your Credit Score

Just applying for a personal loan can impact your credit score. When lenders look at your credit report, two types of checks take place: soft inquiries and hard inquiries.

Soft Inquiries

Soft inquiries don’t impact your credit score at all. These may get used when you’re shopping around for certain types of loans, such as personal loans, and want to check your options. These are also the types of credit checks used when you check your own credit or get considered by a prospective employer.

Hard Inquiries

Hard inquiries do impact your credit score. You get a hard inquiry anytime you actually apply for a new loan or credit card. At that point, it’s reported to the credit bureaus and affects your score for a while.

At Rocket Loans, we let you check your loan options by just doing a soft credit pull. We don’t do a hard pull until you’re ready to move forward with your application.

FAQs About What Credit Score You Need For A Personal Loan

What is the average credit score for a personal loan?

On average, borrowers approved for personal loans have credit scores ranging from Good (670 – 739) to Very Good (740 – 799). As mentioned above, for a personal loan with a good interest rate, you’ll want a score of at least 650.

How can I get the best credit score for a personal loan?

You can qualify for a personal loan with the best rates and terms by taking steps to build up your credit. Unless you need the loan right away, it may be worth waiting until you’ve built your credit up enough.

Can I get a personal loan with bad credit?

You may qualify for a personal loan with a lower credit score, but you may see less favorable interest rates and terms. Take steps to improve your credit score in order to qualify for the best possible loan terms.

Final Thoughts

A personal loan can be a big help in achieving a personal goal, whether that’s consolidating debt or making a large purchase or something else, but your credit score can make a big difference in how much you’ll pay in interest. For the best rates and terms, determine where your credit score needs to be and take steps to improve it. Though you may still qualify with a lower score, a higher score can save you in interest over the long haul.

Want to see what rates and terms you qualify for? Get prequalified today with Rocket Loans.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.