What Credit Score Do You Need for a Personal Loan?

If you’re thinking about applying for a personal loan and are concerned about your credit, you’re likely wondering if your score is good enough. 

What is the minimum credit score for personal loans? In general, requirements start around 580, but that’s not the only criterion lenders have. If you have a higher score and a stable income, your approval odds will be better. Additionally, you may qualify for a better rate and more favorable terms. 

Dives deeper into the question, “What credit score do you need for a personal loan?” to learn why the answer isn’t always clear, as your approval odds can be based on a lot more than your credit score. 

What credit score do you need for a personal loan with most lenders?

Your credit score is a quick way for lenders to assess your risk. Most lenders require a credit score of at least 580 to consider you for a personal loan. A score of 720+ will qualify you for the best rates and terms. The rates go up, and the terms are less favorable for borrowers with lower scores. 

Minimum score requirements by lender type

The minimum credit score for personal loans varies by lender type and several other factors. For example, online lenders tend to be the most flexible, but you need to watch out for predatory companies with extremely high interest rates. 

Credit unions can be a good option. These institutions sometimes offer lower borrowing minimums and more personalized approval criteria. Banks typically have the strictest lending criteria and require the highest scores. 

How credit score affects your rate and terms

Your credit score impacts whether you get approved. It also affects:

• Interest rates
• Loan amounts
• Repayment terms

If a lender considers you to be a high-risk borrower, they will offer a higher interest rate and shorter repayment terms, if they approve you at all. 

What lenders look at beyond your credit score

Even though your score is important, it’s not the only factor landers consider when reviewing your application. If your credit score is borderline, you may still get approved if the rest of your application is strong. There are several factors that a lender will consider. 

Income and employment

Lenders want to see that you have a steady, reliable income to repay the loan. You may be asked to provide 30 days of pay stubs. The lender may also call to verify your employment and how long you’ve been at that company. 

Debt-to-income ratio

Your DTI compares your monthly debt payments to your income. Most lenders prefer a DTI below 36%, though some will go higher, especially for personal loans. If you have a lower DTI, it shows that you aren’t overstretched financially. 

Credit history length and payment history

Lenders also consider the following:

• The average age of your credit accounts
• Whether you pay bills on time
• Any negative marks, such as collections

If you’ve never missed a payment and have a high income, you could get approved, even with a lower score. 

Personal loan options if your credit score is low

There are some options to consider if your score is on the low side.

Secured personal loans

A secured personal loan is backed by collateral, which is something of value that you offer to secure the loan. If you default, the lender can take possession of your collateral and sell it to recoup what you owe. A paid-off vehicle may be used as collateral. 

Credit union loans

Credit unions tend to be more flexible with personal loan requirements than national banks. While you have to be a member, joining is usually pretty simple. Check with your local credit union for credit lending options. 

The loan review process may be a bit more stringent, so keep that in mind. It could take 2-3 business days or more to have your file reviewed. 

Co-signer loans

Adding a co-signer with strong credit can improve your approval odds. If you get approved and have a solid co-signer, you may qualify for a lower interest rate as well. 

However, asking someone to co-sign on a personal loan for you can be a huge commitment. Make sure you follow through with payments, as missed payments will negatively impact your co-signer, too. 

How to improve your credit score before applying

If your score is on the low side and you have time, you can improve your credit. Doing so can save you money in the long run. Here are some practical steps:

• Make your payments on time
• Reduce your credit card balances
• Check your credit report
• Avoid new hard inquiries

You can also focus on building positive credit activity over time. Platforms like Kikoff give you several tools for improving your score, such as a free credit account and verified rent reporting. All of these steps can help you build momentum and improve your eligibility for personal loans in the future. 

Conclusion

Are you ready to become a stronger applicant and improve your financial standing? Take a step toward stronger credit habits with Kikoff.