Taking out a personal loan is often necessary to pay for large purchases, consolidate high-interest debt, or cover unexpected expenses. Before approving a personal loan, lenders want to evaluate the risk of lending money to you. One of the main factors they look at is your credit history and credit score. Generally, the higher your credit score, the lower your interest rates and the better your loan terms will be. But what exactly is the minimum credit score you need to qualify for a personal loan? Keep reading this comprehensive guide to find out.
How Personal Loan Lenders Evaluate Credit Scores
Most lenders offering personal loans base their credit score requirements on the FICO model, the most widely used credit scoring system in the United States. FICO scores range from 300 to 850. The higher the score, the lower the perceived risk that you will default on repaying the loan.
Lenders have internal policies on the minimum credit scores they will accept for a personal loan approval. While specific requirements vary by lender, here are general guidelines on qualifying credit score tiers:
Fair Credit (580-669)
Applicants with credit scores in the fair range will have a difficult time obtaining a personal loan. Some lenders may approve loans for those nearing the upper end of this tier, but interest rates will likely be quite high to offset the substantial risk. Maintaining on-time payments on all existing accounts is critical for boosting scores into a more competitive range.
Good Credit (670-739)
With a good credit score, there is a reasonable chance of personal loan approval, although interest rates will still not be the most favorable available. Payment history continues to be extremely important. Avoiding missed payments and significant new debt are key to improve credit profiles over time.
Very Good Credit (740-799)
Most lenders are willing to offer personal loans to applicants with very good credit scores. Interest rates within this range should be competitive, especially for those approaching 800. Individuals in this tier are good candidates for 5-year loans that keep monthly payments manageable.
Excellent Credit (800+)
Top-tier borrowers with excellent credit receive the most favorable personal loan terms from lenders, including low competitive interest rates and flexible repayment options. Monthly payments can be kept low with longer loan durations. Having robust credit opens access to the widest range of lenders and loan products.
Other Factors Beyond Your Credit Score
While meeting the minimum credit score threshold is critical, lenders also take other information into account when evaluating personal loan applications. Even borrowers slightly above the required score may still be denied based on the factors below, which indicate higher risk:
- Debt-to-Income Ratio: Lenders look at your total monthly debt payments in relation to your income. The higher this ratio, the less borrowing capacity you have, increasing risk.
- Loan Term Requested: Asking for the maximum multi-year term is riskier than a short 1-2 year loan with higher monthly payments.
- Purpose of the Loan: Financing discretionary purchases indicates more risk than using funds for necessities like medical procedures.
- Employment History: Having a stable well-paying job for at least two years reduces risk versus frequent job changes.
- Derogatory Marks: Prior events like bankruptcies, foreclosures, and late payments raise red flags.
On the other hand, some factors can help offset a credit score slightly below lender minimums:
- Significant assets and cash reserves
- Strong income stability and amount
- Low debt-to-income ratio
- Short loan repayment term
Building a solid overall financial profile improves your chances of personal loan approval.
What to Do If You Don’t Meet the Minimum Score
For borrowers with fair credit scores between 580-669, it can take 6 to 12 months of responsible credit management to improve your profile enough to meet lender requirements. Here are some tips:
- Make all credit card and loan payments on time each month
- Pay down balances on revolving credit lines to lower utilization ratios
- Limit new credit inquiries by only applying for what is absolutely necessary
- Check reports for errors and dispute inaccurate information
If your credit score still falls below the minimum threshold, here are some potential options:
- Explore secured personal loan products that use cash collateral
- Ask a cosigner with excellent credit to join your application
- Consider online lending marketplaces that may approve lower scores
- Speak with the lender about their decision and how to strengthen your financial profile
Meeting with a loan officer to discuss your application denial provides guidance on improving certain aspects of your financial situation to qualify in the future.
The Bottom Line
While specific personal loan credit score requirements vary amongst lenders, most have minimums in the 620-680 range for approval. Borrowers with scores above 740 will qualify for the most favorable interest rates and terms. However, your credit score is just one piece of the puzzle lenders analyze to evaluate loan risk. Building healthy financial habits and a strong overall profile sets you up for personal loan approval success.
- Most lenders require minimum credit scores between 620-680 for personal loan approval. The higher your score, the better terms you will receive.
- FICO credit scoring model is most often used, with scores ranging from 300 (poor) to 850 (excellent).
- Factors beyond your score like income, assets, and existing debts also influence loan decisions.
- Options if your score falls below requirements include secured loans, co-signers, or alternative lenders.
- Responsible financial habits over time can raise your credit profile to qualify for lower rates.
Frequently Asked Questions
What is the lowest credit score a lender will approve for a personal loan?
The lowest score lenders will consider is around 600. Approvals become more common once you reach the low to mid 600’s. With scores below 620, expect high interest rates and stringent loan terms if approved.
If my credit score is 750, will I get the best personal loan rates?
A 750 credit score is generally considered excellent and will qualify you for the most competitive interest rates from lenders, especially if you have a solid income and low debt burden. You’ll likely have multiple lenders to choose from.
How long does it take to raise my credit score enough to get a personal loan?
It can take around 6 months to increase your credit score enough to reach the approval range for most lenders. Keep all payments on time, lower credit utilization, and avoid new credit inquiries during this period.
What steps can I take if my credit score is denied for a personal loan?
If your application is denied, ask the lender what specific factors led to their decision and how you can strengthen your financial profile. Improving your credit score and debt-to-income ratio are common recommendations.
Is a 650 credit score high enough to get approved for a $15,000 personal loan?
It depends on the lender, but many have minimum requirements around 650-680. With a 650 score, you may get approved for $15,000 but with a relatively high interest rate or short repayment term to mitigate risk.## Factors That Impact Your Credit Score
Your credit score is calculated based on information in your credit reports. Here are some of the key factors that affect your score:
- Payment history (35%) – On-time payments on all accounts, including credit cards, loans, mortgages, etc. Late or missed payments lower scores.
- Credit utilization (30%) – The ratio of credit balances to total available credit limits. Using over 30% of available credit hurts scores.
- Credit age – Length of open credit accounts. Older accounts indicate stability and raise scores.
- Credit mix (10%) – Having different types of credit (credit cards, loans, etc). A healthy mix helps scores.
- New credit (10%) – Opening many new accounts lowers score, while judiciously adding credit can raise it.
Monitoring these areas and practicing good credit habits will help improve your credit profile over time.
Tips for Qualifying for a Personal Loan
Beyond meeting the minimum credit score requirement, you can take other steps to strengthen your personal loan application:
- Pay down revolving credit card balances to lower your utilization ratio
- Avoid applying for new credit near your loan application date
- Maintain steady employment and income sources
- Build up savings and assets to demonstrate stability
- Choose a reasonable loan amount and term based on income
- Get pre-qualified to check rates without a hard credit inquiry
- Apply with a cosigner if needed to offset credit weaknesses
- Explain any past credit issues with your application
Presenting yourself as a low-risk, financially responsible borrower can help overcome borderline credit scores.
Alternatives to Traditional Personal Loans
If you need financing but don’t meet traditional lender requirements, here are some options to consider:
- Credit union loans – May offer more flexibility than big banks.
- Peer-to-peer lending – Borrow from individual investors through online platforms.
- Payday alternative loans – Offered by some credit unions at lower rates than payday lenders.
- Secured personal loans – Requires an asset like cash or stocks as collateral.
- Cosigned loans – A creditworthy cosigner helps you qualify and get better rates.
- Credit-builder loans – Establish payment history and improve credit scores for the future.
Do your research to find the right alternative loan product to fit your needs and financial situation.