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

Miranda Crace6-Minute Read
UPDATED: June 02, 2024


People use personal loans for a variety of reasons, including debt consolidation, paying for home improvements and financing a big purchase. Being able to qualify for a personal loan largely depends on the borrower’s credit score since a personal loan is typically unsecured by any collateral. If you’re approved for the loan, your credit score will also affect your interest rate and how much you pay in interest for the life of the loan, so it can help to know what goes into calculating your score.

Below, we’ll break down credit requirements for personal loans, discuss what constitutes good credit, and explain how you can achieve it.

What Is The Minimum Credit Score For A Personal Loan?

Typically, the minimum credit score for personal loan approval is 610 – 640. The best credit score for a personal loan with good rates and terms, though, is most often 650 or higher. Each personal loan gets evaluated on an individual basis, and requirements vary by lender. A lower credit score will likely result in a high interest rate, though.

Here are the common credit score ranges and what they mean for potential borrowers:

Credit Score Range

Personal Loan Approval

800+ (Excellent)

Borrowers will likely qualify for a great interest rate, great loan term and large loan amount.

740 – 799 (Very Good)

Borrowers may still qualify for a good interest rate and term, and a significant loan amount.

670 – 739 (Good)

Good credit can still qualify borrowers for a modestly low interest rate as well as a good loan term and a reasonably high loan amount.

580 – 669 (Fair)

Fair credit could mean a less desirable loan term and amount, but borrowers still have the potential to get a decent interest rate.

579 or less (Poor)

Borrowers who qualify with poor credit will face a high interest rate and a shorter loan term, and they’ll qualify for a smaller loan amount.

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.

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Why A Certain Credit Score Is Needed For A Personal Loan

Your credit score plays a major role in your lender determining your reliability as a borrower to repay your loan in full and make timely payments. Since your credit score is reflective of how you handle your finances, lenders deem borrowers with a higher credit score as less risky. As a result, lenders will charge these borrowers a lower interest rate. Borrowers with a low credit score, as mentioned above, don’t instill confidence in lenders, who will consequently charge them a higher interest rate to compensate for the possibility of them being unable to make their loan payments on schedule.

How Your Credit Score For A Personal Loan Is Determined

Today’s system for judging individual creditworthiness involves the three major 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®.

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, you’re able to understand the weight given to each factor that goes into your score. 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 monthly payments on time, it’s good for your credit score. Payments that are 30 or more days late can hurt your score. 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. Here, you can exert a certain amount of control over 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 a $10,000 limit, you wouldn’t want a balance of more than $3,000 at any given time. If you must carry a balance, try to keep it as low as possible to avoid paying more than necessary.

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, which may include 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 boost the lender’s faith in your ability to repay your loan on time.

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 when they’re due and pay balances down or off, your credit score should go back up within 3 months or so.

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 (mortgages, car payments, student loans, etc.) 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. Here’s the formula:

Installment Debt + Revolving Debt Payments / Gross Monthly Income

Let’s look at a quick example. Suppose 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, the lower your DTI, the better your chance of qualifying for a loan in most cases. 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.

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 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 it 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 The Credit Score Needed For A Personal Loan

Want to know more about credit scores for personal loans? Ponder the answers to these frequently asked questions.

What is the average credit score for a personal loan?

On average, borrowers approved for a personal loan have a credit score ranging from Good (670 – 739) to Very Good (740 – 799). You’ll likely need a score of at least 650 for a personal loan with a good interest rate.

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

Getting the best credit score – 700 and over – for a personal loan means 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.

Which FICO® Score counts?

One way lenders may evaluate your score is by taking the median credit score from the three major credit bureaus for qualification purposes. In some cases, lenders may only consider scores from one or two of the bureaus, though. If this happens, the lender will probably take the lower of the two scores for qualification purposes.

If you have two or more co-borrowers qualifying for a loan, lenders typically take the lowest median score.

Can I get a personal loan with bad credit?

You may qualify for a personal loan with a lower credit score, but in all likelihood, you’ll 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, 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. Although you may still qualify with a lower score, a higher score can save you in interest both now and over the long haul.

Want to see what rates and terms you prequalify for? Start the process today with Rocket Loans.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.