What credit score do you need for a personal loan?

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The credit score you need for a personal loan varies by lender. But to get the best interest rates, you’ll usually need good to excellent credit. (Shutterstock)

A personal loan is a useful financial tool when you need to borrow money to cover virtually any expense, such as car repairs, home improvements, or medical bills. When you apply for a personal loan, you must meet the credit requirements of the lender. Having good to excellent credit will generally get you the lowest interest rates, but some lenders specialize in bad credit personal loans.

Learn more about the credit score you need to qualify for a personal loan, why your credit score matters and what to consider when comparing personal loan lenders.

Believable makes it easy view your prequalified personal loan rates from various lenders offering loans for a wide range of credit scores.

What credit score do you need to qualify for a personal loan?

Each lender has its own credit score requirements for a personal loan. Because of this, it is possible to find a personal loan lender that will give you a loan no matter what your credit score is.

But you generally need at least a good credit score to get a personal loan with a decent interest rate and loan terms. The higher your credit score, the better your interest rate is likely to be and the more loan options available to you.

Most lenders use the FICO credit scoring model to determine whether to approve you for a loan. Here’s how FICO breaks down credit score ranges:

Why is your credit score important when applying for a personal loan?

Credit scores are three-digit numbers that represent your credit history, which is reported on your credit reports from each of the three major credit bureaus: Equifax, Experian, and TransUnion. The higher your credit score, the more likely a lender will lend you money. Because having a higher credit score makes you more likely to repay your loan in the eyes of the lender, they tend to offer the best interest rates and loan terms to borrowers with good credit scores.

If you have a low credit score, you may have to work a little harder to find a lender that will offer you a personal loan. Some lenders will approve a loan even if you have a bad credit score or lack of credit history. But you’ll probably pay a higher interest rate on a loan than someone with good or excellent credit.

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Factors that affect your credit score

The following factors work together to determine your credit score:

  • Payment history – This is the most important factor in determining your credit score and accounts for 35% of your score. When you make your credit card and bill payments on time each month, you improve your credit score. If you make late payments or miss so many payments that you default on a loan, it can hurt your credit score.
  • Credit utilization ratio — Your credit utilization ratio represents how much of your available credit you are using and represents 30% of your FICO Score. The lower your credit utilization ratio, the more your score will benefit. Ideally, you want to keep this ratio below 30%.
  • Length of credit history — If you can establish a credit history from a young age, you are off to a good start. The longer your credit history, the more your credit score will benefit. Keeping an old credit account open, even if you don’t use it often, can help you maintain a longer credit history.
  • credit mix — Having a diverse mix of credit products in your name, such as a student loan, a credit card, and an auto loan, can help illustrate to lenders that you are capable of managing and paying off multiple types of debt at once .
  • New credit — Applying for or opening too many new credit accounts in a short period of time can scare off lenders, as it indicates that you may need to borrow money to survive. If you are applying for a personal loan, try to avoid applying for new forms of credit in the months leading up to your loan application.

You may compare personal loan rates on the Credible platform, and it won’t affect your credit score.

Can you get a personal loan if you have bad credit?

Yes, you can get a personal loan if you have bad credit. Some lenders even specialize in bad credit loans.

Consider a peer lender that accepts a lower credit score and focuses on work and educational history when deciding whether to lend you money. If you belong to a credit union, you may have more lenient lending criteria than some larger banks or financial institutions.

If you’re having trouble getting a personal loan approved on your own, you can apply with a cosigner who has good or excellent credit. Adding a co-signer to your loan application can make it easier to qualify for a personal loan and help you get a lower interest rate.

How a personal loan can affect your credit score

Taking out a personal loan can affect your credit score in different ways:

  • Improve your credit mix — Getting a personal loan can help you improve your credit mix.
  • Build a payment history — As long as you make your personal loan payments on time, you’ll be working to build a positive payment history.
  • Create a hard query: When you apply for a personal loan, the lender will check your credit with a hard credit inquiry. This can negatively affect your credit score, but it will usually recover after a few months.

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What about loans without a credit check?

Loans without credit check They are a type of loan designed for people with bad credit or who have not established a credit history. Since these loans do not require a credit check, lenders compensate for the risk they are taking by charging higher interest rates or more fees. No credit check loans may be easier to qualify for than traditional personal loans, but that ease of eligibility comes at a high cost.

Payday loans and title loans are two types of loans that do not require good credit scores. These small, short-term loans come with fees that can equate to sky-high APRs of nearly 400%, according to the Consumer Financial Protection Bureau. These loans can trap you in a cycle of debt and should only be considered as a last resort.

What should you consider before choosing a personal loan lender?

No matter what your credit score is, you’ll want to consider the following factors when comparing different lender options:

  • Interest rate – The higher the interest rate, the more you will pay over the life of the loan. See which lender can offer you the lowest interest rate.
  • Return period — The length of the payment term may affect the amount of your monthly payment. While shorter payment terms can help you save on interest, they usually come with higher monthly payments. Make sure the lender you choose can offer you payment terms that fit your budget.
  • Loan amount – It’s important to borrow only what you need so you don’t pay interest on unnecessary funds. Find a lender that will lend you the full amount you need.
  • Rate – All lenders charge fees differently. Ask each lender you’re considering what fees they’ll have to pay, such as origination fees for processing the loan or prepayment penalties for paying off the loan early.
  • Cosigner Option — Not all lenders allow co-signers on personal loans. If you want to apply with a cosigner to improve your chances of qualifying and help secure a better interest rate, you’ll need to find a personal loan lender that allows cosigners.

How to apply for a personal loan

Different lenders have different application processes, but when you apply for a personal loan, you can generally expect to go through the following steps:

  1. Compare lenders. Before applying for a personal loan, pre-qualify with different lenders and compare each one to see which one can offer you the best personal loan to meet your needs.
  2. Choose a loan option. Once you find a lender, you can choose which of their loan products you want to apply for.
  3. Complete the application. When you apply for a personal loan, you will need to provide personal and financial information, such as documentation that proves your identity, employment status, and income.
  4. Get your funds. If you are approved for a loan, the lender will disburse the funds, usually by direct deposit into your bank account.
  5. Start making payments. After you receive your loan funds, you will begin making your regularly scheduled payments (usually monthly) until you pay the loan in full according to your payment term.

If you’re ready to apply for a personal loan, visit Credible for quick and easy access. compare personal loan rates from multiple lenders in minutes.

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