While there is no fixed number that will secure you a personal loan, each lender will have their own criteria and credit score will only be one of the factors they take into consideration. However, there are definite trends within the industry and it is important to know where you fit in before applying somewhere you don’t have a chance of being accepted or, even worse, accepting a rate that was below what you wanted to.
The real ranges and what to expect at each of them.
The General Ranges
The average credit score required for a personal loan ranges from 580 to 660 to even be considered for a personal loan. After that, your choices become quite limited; but not gone yet, more on that later.
Most lenders require the FICO score to be at or above 670 for a personal loan to have competitive rates, ones that are worth considering. If you are seeking the best terms, lowest rates, largest amount, most flexible repayment terms, you are in the 740+ range of scores. To give you some perspective, the average FICO score for those who were approved for personal loans recently hovered around 714, so you can get a feel for where the “average” successful applicant ends up.
Here’s an approximate breakdown:
Below 580 – Limited options. There are bad credit personal loans lenders who specialise in providing loans to borrowers with poor credit history, but with the expectation of a higher interest rate and less loan amount.
580 to 669 – Fair credit. You may be able to qualify from several lenders, but the interest rates that you qualify for will be higher and the amount that you can qualify for may be limited.
670 to 739 – Good credit. From this point on, you begin to notice the better rates, and you will find a much larger selection of lenders.
740 and above – Very good to excellent credit. The best advertised rates, and most desirable terms, generally will be offered throughout.
Why There’s No Single Universal Number
Please be aware these are general guidelines and not rules. Many lenders do not indicate a minimum score and some specialise in doing nothing more than processing loans for those with lower scores, focusing more on other aspects. You can be rejected with a good credit score if any other area of your finances is risky, and approved with a lower score if you have a solid income and debt profile.
That is why it pays to get an accurate line of credit rate by contacting multiple lenders, and most lenders allow a “soft” credit check which does not affect your credit score.
What Lenders Look at Besides Your Score
Although credit score does give lenders a quick snapshot, most lenders will delve into a few other areas as well.
The number of your monthly income that you use to pay your secured personal loans is just as important as your score. Most lenders prefer to see the ratio at less than 40-50%. If your job is secure and you have a steady income, you can expect lenders to accept you. But the fact that you’ve had big negative items on your credit report, such as a bankruptcy, foreclosure or missed loan payments, can still impact your eligibility, even if your score has rebounded.
If Your Score Is on the Lower End
With a lower score, you may not be able to get a personal loan, but it is likely to be on less favourable terms and it’s important to be sensible about how you do it.
Certain lenders focus exclusively on borrowers with fair or bad credit, and take into account factors other than credit scores, such as income and employment. The lender has an extra layer of security, which means a cosigner with better credit may be able to get you better credit than you can get by yourself. Loans that are secured by collateral (e.g., a savings account) may have lower interest rates than unsecured loans, because the lender has less risk in the secured loan.
Don’t apply to numerous lenders in succession, believing that some will accept you. If you’re making several hard credit checks in a small span of time, your score will decrease further, and it won’t help you.
How to Improve Your Odds Before Applying
Even if you have a bit of time before you actually need the loan, then a few months of focused effort can make a difference in your score. Reducing the utilization of credit cards will decrease the amount of balances on your credit cards, which is one of the more significant factors in most scoring models. The greatest contributing factor in most scores over time is the timely and consistent payment of every single payment. But taking the time to see if there are any mistakes in your credit report (which many people don’t realize can be there), can sometimes be important to finding something that you’re not doing that is unnecessarily dragging your score down.
None of these are instant fixes, but a 60 to 90 day ‘runway’ before applying for a loan can make a difference in getting a rate in the better range.
The Bottom Line
Unlike any other kind of loan, there is no magic number that will secure a loan for you – most lenders will roughly follow the pattern of 580 to 660, and you’ll get fairly competitive rates at 670 and above, and excellent rates at 740 and above. If you are below the hoped-for score, there are some reasonable steps you can take: Check lenders who specialize in fair credit, get a cosigner, or wait a few months to better your score before making an application.
Before you approach any particular lender, it’s best to get a few quotes, using a soft credit check, to see what the estimates turn out to be before you get your hopes up on any particular lender’s minimum rate.
Frequently Asked Questions
Is it possible to get a personal loan if one’s credit rating is lower than 580?
It may be possible, but the options become very limited and the rates are usually a lot more. Some lenders specialize in bad credit personal loans and take into account more than the credit score; they focus on income and job.
What is the minimum credit score needed for the best personal loan rates?
Most lenders reserve their best rates for borrowers with scores of 740 or higher, though some competitive offers start appearing around 670.
Does checking my rate before applying hurt my credit score?
No. Most lenders offer a rate check using a soft credit inquiry, which doesn’t affect your score. Only a full application typically triggers a hard inquiry.
Disclaimer:
This article is for general informational purposes only and does not constitute financial advice. For guidance specific to your situation, consult a licensed financial adviser.
