Personal loans have become very popular in recent years. There are hundreds of personal loan lenders, some that operate entirely online.
Personal loans are unsecured loans that can be used for just about any purpose, and because interest rates can vary dramatically, what credit score is needed for a personal loan is one of the most important questions.
Because of the wide range of personal loan interest rates, you owe it to yourself to maximize your credit score before applying.
It can not only affect personal loan approval, but also determine whether the interest rate you’ll pay will make financial sense.
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What Credit Score is Needed for a Personal Loan
As we’ll see in the next section, the credit score needed for a personal loan can vary substantially from one lender to another.
Some lenders work only with those with good or excellent credit. They have the lowest interest rates – generally much lower than what is available on credit cards – as well as the highest loan amounts. If you meet the credit score requirements, these lenders will certainly be your best choice.
But when it comes to personal loans, it’s important to match your credit profile with lenders that specialize in the corresponding credit score range. There are personal loan lenders that will also work with consumers who have average credit, fair credit, and even poor credit.
But even if you apply with personal loan lenders that match your credit score range, you won’t be guaranteed of either approval or a specific interest rate.
A large number of participating lenders means the specific criteria is often difficult to determine in advance. But the information on personal loan lenders in the next section should help to provide some guidance.
Minimum Credit Score for Personal Loans Varies by Lender
One of the advantages of personal loans is that the various sources often specialize in specific credit niches.
Excellent or Good Credit Score Personal Loans
For example, if you have good or excellent credit, you can make an application with a personal loan with SoFi:
- SoFi Personal Loan – requires a minimum credit score of 680, and will lend up to $100,000 at rates ranging from 5.99% to 20.69% APR.
Average Credit Score Personal Loans
For someone with an average credit score better, Prosper will be a good choice. They’ll lend up to $40,000 at interest rates ranging from 7.95% to 35.99% APR with a minimum credit score of 640.
For fair or average credit, Lending Club is a good choice:
- Lending Club – requires a minimum credit score of 600, and will lend up to $40,000 at interest rates ranging from 10.68% to 35.89% APR.
Good or Poor Credit Score Personal Loans
The following lenders make loans available to borrowers with credit scores lower than 600.
However, it’s not always clear how far below 600 they’ll go.
- Upstart – will accept a credit score as low as 580 and lend up to $50,000 at interest rates ranging from 8.27% to 35.99% APR.
- Avant – will also go as low as 580, and lend up to $35,000, at interest rates ranging from 9.95% to 35.99% APR.
- One Main Financial – is a direct lender that does not have a specific credit score minimum. However, their loan amounts are lower, at a maximum of $20,000, and interest rates range from 18.00% to 35.99% APR.
If you do have fair or poor credit, personal loan sources like Upgrade and Upstart may actually be your best choice.
That’s because each is an online personal loan marketplace, involving participation from multiple lenders.
That type of site may offer the best opportunity to at least get your application approved by one or more potential lenders.
(APRs updated as of 1/20/21)
What Credit Score is Needed for a Personal Loan Can be Proprietary
It’s important to understand that personal loans are something of a different animal where credit scores are concerned.
Part of that has to do with the unique structure of personal loans. Since they’re unsecured loans – often for large amounts – and carry fixed interest rates and terms, lenders may not rely entirely on your credit score to determine interest rates.
For example, Lending Club uses what they refer to as loan grades, rather than relying exclusively on credit scores. Prosper works in much the same way.
Lending Club creates a credit profile for each applicant, assigning a grade of A, B, C, or D to each, with five graduations within each grade level. Altogether, there are 20 total sub-grade levels, with an interest rate assigned to each:
Your FICO Score is the starting point for your interest rate determination, but they also factor in the amount of the loan and the term, which can be either 36 or 60 months.
Lending Club also factors in specific information from your credit report, including the length of your credit history, the number of open accounts, credit usage, and recent activity, including credit inquiries over the past six months.
This is just one example of how a personal loan lender may depart from strict reliance on credit scores. There are likely others using similar hybrid methods, particularly with online personal loan marketplaces.
Since those marketplaces involve participation by multiple lenders, each may have its own proprietary system for determining both loan approval and interest-rate setting.
Preparing Your Credit Score for Personal Loan Approval
Since most personal loans are taken for debt consolidation, paying off of high-interest credit cards, or a major purchase, you’ll usually have time to prepare your credit score for personal loan approval.
That time will be important, because it often takes several weeks or even months to produce a significant increase in your credit score.
If you do have that time, take advantage of it to take the steps necessary to raise your credit score. It will not only make a major difference in the interest rate you’ll pay on your personal loan, but also the number of potential lenders you can make an application with.
Monitor Your Credit
Dispute Negative Entries
For example, if there’s any negative information showing up on your credit report that shouldn’t be there, there are steps you can take to have it legally removed. Just having one or two negative credit errors dropped from your report can raise your credit score in short order.
Lower Credit Utilization
Another tactic to increase your credit score is to lower your credit utilization ratio. That’s the total amount you owe divided by your high credit limits.
A ratio of less than 30% can increase your credit score, but a higher ratio will hurt it. By working to lower the ratio, your credit score should show meaningful improvement.
Pay Your Past Due Balances
Finally, if you have any past due balances or collections showing up on your credit report, pay them off now.
That won’t make them disappear from your credit report, but a paid collection or past due balance is better for your credit score than an open one.
And often, by paying them off, you can get at least a small bump up in your credit score.
Why Your Credit Score Is So Important For A Personal Loan
You don’t need to build perfect credit to get a good personal loan. But the higher your credit score is, the more options you’ll have, and the lower your interest rate will be.
That last point is particularly important. As we saw earlier, with the credit score ranges from various lenders being anywhere from 5.99% to 35.99%, exactly where you’ll fall on that scale will determine whether getting a personal loan is even desirable.
For example, let’s say you have $20,000 in high-interest credit cards, with an average interest rate of 22%. A personal loan will be the perfect way to not only lower your interest rate, but also to get into a fixed rate, fixed-term loan that will completely extinguish your plastic in just a few years. In that way, a personal loan is one of the best ways to make a chronic credit card problem go away.
Now the whole strategy will work beautifully if you can get a personal loan rate of say, 8%. At that rate, a five-year loan of $20,000 will carry a monthly payment of $359. That’s lower than the $400+ you’re likely currently paying on your credit card balances. But the biggest advantage is that you’ll go from variable rates to fixed, and the debt will be completely gone in five years.
Getting that 8% rate will almost certainly require a credit score something well above 700. If you don’t have it, the interest rate you’ll be charged will make the personal loan debt consolidation less attractive.
For example, let’s say your credit score is 630. At that level, the interest rate on your personal loan may be 20% – which is close to what you’re paying on your credit cards right now. And even though you’ll have the debt paid off completely within the five-year term of the personal loan, your monthly payment will jump to $530. That would be a lot less manageable than what you’re currently paying on your total credit cards.
That’s why it’s so very important to do everything you can to improve your credit score for a personal loan.
Final Thoughts on What Credit Score is Needed for a Personal Loan
Personal loans have become so valuable precisely because of their flexibility. You can borrow a large amount of money for just about any purpose and get the benefit of a fixed interest rate and term.
But to get that type of financing – at a rate and monthly payment that makes sense – will require you to have at least an average credit score, and preferably a good one.
That makes a strong case for regularly monitoring your credit and making any necessary improvements before making an application.