What Is the Minimum Credit Score Needed for a Personal Loan?

Minimum credit score requirements for personal loans tend to vary by lender. While there are no universal requirements, a FICO score of at least 580 will help you secure reasonable loan terms.

Updated: October 18, 2024

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Credit scores can range from 300 to 850, helping lenders assess the risk of lending someone money by giving a snapshot of their credit history. A score under 580 is generally considered poor, while anything above 800 is viewed as excellent.

Having a good credit score can increase your chances of approval and favorable terms when applying for a personal loan. However, getting a personal loan with a lower credit score is still possible, though the terms might not be as ideal.

Lenders have varying minimum credit score requirements for personal loans. As you consider your options, make sure to understand each lender’s specific criteria to find the best match for your financial situation.

Key Takeaways

Your credit score significantly influences your eligibility for a personal loan, affecting the interest rates and terms you receive.

There is no universal minimum credit score for personal loans. Although you may qualify with a credit score of 580, you’re likely to secure better terms with a higher score.

Making your bill payments on time, monitoring your credit reports and lowering your credit utilization rate are a few ways to improve your credit.

How Credit Scores Work for Personal Loans

When you apply for a personal loan, lenders evaluate your credit score, among other factors, to decide whether your application is approved and what terms they might offer. Your credit score is a numerical representation of your financial history. Generally, a higher score indicates a solid track record of meeting financial obligations, such as repaying debts on time.

There are two major scoring bodies: FICO and VantageScore. Although both consider similar factors to determine your credit score, they use different numerical ranges to rate your creditworthiness.

DIFFERENCES BETWEEN FICO AND VANTAGESCORE MODELS

"Lenders may use one or both scoring models when evaluating personal loan applications. FICO ignores paid collections after a certain period, while VantageScore continuously factors them into the score. FICO also requires at least six months of credit history to generate a score, while VantageScore can score consumers with as little as one month of history." — Alvin Yam, CFP

FICO scores are broken down into five key categories, each contributing a different weight to your overall score:

Payment History (35%): This measures how consistently you make timely payments for loans and credit cards.
Amounts Owed (30%): This looks at the total amount of credit you're using compared to your credit limits, known as your credit utilization ratio.
Length of Credit History (15%): Longer credit histories are favorable as they give lenders an overview of your spending habits and repayment behavior.
Credit Mix (10%): This factor considers the variety of credit types you manage, such as credit cards, installment loans and mortgages.
New Credit (10%): This includes the number of new credit accounts you've recently opened and the number of inquiries from potential lenders.

VantageScores are calculated based on similar categories but are weighted slightly differently to provide an alternative perspective on credit risk.

WHY DOES CREDIT SCORE MATTER?

Your credit score can make a significant impact on your personal loan journey. Here are some of the highlights:

Loan Eligibility: A low credit score may disqualify you from a loan, while a higher score may increase your chances of being approved.
Loan Amount: Lenders are more likely to offer larger loans to applicants with high credit scores, reflecting their confidence in your ability to repay.
Interest Rate: Applicants with higher scores typically receive lower interest rates, which means they will pay less over the life of the loan compared to those with lower scores.

Minimum Credit Score Requirements for a Personal Loan

If you're wondering about the minimum credit score needed to qualify for a personal loan, knowing there isn't a one-size-fits-all answer is essential. Lenders have varying criteria for their loan products, but generally, a credit score of at least 580 should suffice to get your foot in the door for a personal loan.

However, applicants with credit scores ranging from 600 to 700 typically find themselves in a better position, as higher credit scores improve the likelihood of approval and may result in more favorable loan terms.

Impact of Credit Scores on Personal Loans

Here’s what you can typically expect when applying for a personal loan based on your credit score.

FICO Score	Impact on Personal Loans
Poor (300–579)	Finding a lender might be tricky. Lenders with whom you qualify may charge high interest rates. You may have significantly limited loan amount options. You may have to provide collateral.
Fair (580–669)	You may have more options for personal loans. Lenders still charge higher interest rates. Lenders may offer low loan amounts.
Good (670–739)	You'll qualify for personal loans from more lenders. You may be eligible for higher loan amounts. Lenders offer more affordable rates.
Very Good (740–799)	You may qualify for the lowest interest rates a lender offers. Lenders will allow you to borrow higher amounts.
Excellent (800–850)	You may qualify for the lender’s highest possible loan amount. Lenders offer you the lowest possible interest rates.

Additional Factors Influencing Personal Loan Approval

Lenders set a minimum credit score requirement for personal loans because it's a significant factor that affects funding decisions. However, it isn't the only factor they consider. Here are some additional areas that influence loan approval:

Employment History and Income

Lenders assess your employment history and income to evaluate your ability to repay the loan. Stable employment and a sufficient income suggest you are more likely to manage monthly payments effectively.

Debt-to-Income Ratio

Your debt-to-income ratio compares your monthly debt obligations to your income. Lenders use it to determine if you can handle additional debt; a lower ratio generally means a better chance of loan approval.

Presence of a Co-Signer

Having a co-signer can improve your chances of approval, especially if your credit score is lower than desired. A co-signer adds an extra layer of security for the lender, as they agree to take on the payment responsibility should you default on payments.

Collateral

For secured loans, the collateral you provide can affect your loan approval. Collateral reduces the lender's risk, often resulting in better loan terms or increased likelihood of approval.

Origination Fee

Origination fees are charged to process your loan application and can vary by lender. While it doesn't necessarily affect approval, it's a cost to consider as it impacts the total amount of the loan and could influence your decision on which lender to choose.

How to Improve Your Credit Score Before Applying

Although improving your credit score might require some time and effort, it is certainly worthwhile. A good credit score can significantly enhance your personal loan application, offering you more options for lenders and better rates. Here are some practical ways to boost your credit score:

1
Make Consistent Bill Payments
Your payment history is the most significant part of your FICO score. Consistently paying your bills reflects financial reliability, which positively impacts your credit history.
2
Lower Credit Utilization Ratio
Aim to use less than 30% of your available credit limit. Lower credit utilization ratios suggest you are not overly dependent on credit, which can positively influence your score.
3
Review and Monitor Credit Reports
Regularly checking your credit reports allows you to catch and rectify any errors or discrepancies. This proactive approach ensures your credit history is accurately represented.
4
Avoid Credit Card Applications
Each time you apply for a new credit card, it can trigger a hard inquiry that may lower your score temporarily. Limiting new applications can help maintain your current score.
5
Deal With Delinquent Accounts
Address any overdue accounts, as they can severely affect your credit score. Bringing these accounts current or settling them can significantly improve your credit standing.

OPTIONS TO BUILD CREDIT HISTORY

"If you have a low credit score, you can consider building up your credit history with a secured credit card or credit builder loan. Secured credit cards require a cash deposit, which usually serves as your credit limit. They can be a good option if you have the money for a deposit and are able to manage a credit card.

Meanwhile, credit builder loans are designed to help you build credit. The lender sets aside a small amount in a savings account, and you make payments that can be reported to the credit bureaus. Once the loan has been repaid, you get access to the money minus any fees and interest." — Alvin Yam, CFP

FAQ About Personal Loans

We compiled a list of frequently asked questions about personal loans to help you make more informed financial decisions.

How much can you borrow with a personal loan?

Loan amounts can range from a few thousand dollars to $100,000. However, the amount you can borrow typically depends on the lender and your financial situation, including your income and credit score.

What documents do you need to apply for a personal loan?

You'll generally need to provide proof of identity (like a driver's license or passport), proof of income (such as pay stubs or tax returns) and proof of residence (like a utility bill or lease agreement).

How long does it take to get approved for a personal loan?

This can vary from lender to lender. Some online lenders can process your application and disburse funds as soon as the same or the next business day, while traditional banks and credit unions may take a few days to a week.

What are the interest rates for personal loans?

According to Federal Reserve data, the average interest rate for a 24-month personal loan is 12.49% as of February 2024. Your rate may vary based on factors like your credit score, income and the lender’s policies.

Can you pay off your personal loan early?

Most lenders allow you to pay off your personal loan early without penalties, but it's important to review your loan agreement for any prepayment fees.

What happens if you miss a payment on your personal loan?

Missing a payment can lead to late fees, damage to your credit score and other penalties. If you foresee difficulty making a payment, contact your lender as soon as possible to discuss options.

Do personal loans require collateral?

Personal loans can be secured or unsecured. Secured loans require collateral, like a car or a home, while unsecured loans do not. Unsecured loans might have higher interest rates due to the lender's higher risk.

How do you find the best personal loan for you?

Compare several factors, including interest rates, additional fees, loan amounts, repayment terms and the lender’s customer service. Consider your financial situation and choose a loan with the most favorable terms for your needs.

Are there alternatives to personal loans?

Yes, alternatives to personal loans include using a credit card, home equity line of credit or even borrowing from friends or family. Each option has its pros and cons, depending on your financial needs and circumstances.

About Zachary Romeo, CBCA

Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.

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sources

Federal Reserve. "Consumer Credit." Accessed September 17, 2024.

The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.