What Credit Score Do I Need for a Personal Loan?

credit score for personal loan

If you’re looking to meet additional expenses or expand into new ventures and don’t want to rely on credit cards, one option is to apply for a personal loan. One of the criteria that lenders will take into account is your credit score. Find out what credit score is needed for a personal loan, what else to bear in mind and whether it’s the right choice, depending on your circumstances. 

What You’ll Need to Apply for a Personal Loan

Getting your documents in order before approaching lenders makes for a smoother process and should help you identify the most appropriate lender for your situation. You’ll need the following:

Personal loan checklist

  • Proof of identity and address, such as social security card, utility bills, etc. 
  • Proof of income. Lenders will usually impose minimum income requirements for loans, so get together your tax returns, pay stubs and bank statements to establish your regular income and current borrowing picture. 
  • Credit report. These are scored on a scale of 300 to 850 from the three main credit reporting agencies. Each agency might deliver a different score since they may weigh the various elements that contribute to the credit score differently. 

Monitoring your credit score with a so-called “soft inquiry” will not negatively impact your score, but once a potential lender makes a hard inquiry bear in mind that this can lower your score temporarily. 

What Credit Score You Need to Obtain a Personal Loan

Lenders look at a variety of factors in assessing your risk as a borrower, one of which is the credit score, but also including your age, payment history and current level of debt. As a benchmark, you’ll need a score of 600 or more to qualify for a personal loan, but that is by no means set in stone. 

For a secured personal loan, you could qualify with a lower credit score if you are able to offer higher collateral, for example, or provide a co-signatory to guarantee the loan. Under the Truth in Lending Act, a lender must inform you of the repayment amounts, due dates, APR, late penalties and so on before you take out the loan, so the process is transparent and you can make a rational decision on the relative risks and benefits of borrowing. 

How Your Credit Score Influences the Terms of a Personal Loan

If you are able to achieve your best possible credit score above the 600-point benchmark, you should have access to the most generous Annual Percentage Rates (APR) and repayment terms. The options vary on a sliding scale with your credit score. At the lower end of the spectrum, you may still qualify for a personal loan, but you will not be able to take your pick of lenders. The APR might be higher and you may be required to provide more collateral to guarantee the loan. 

Advantages of a Personal Loan

If you can find a personal loan proposal that fits your current budget and future repayment timeline, the interest rate will usually be lower than borrowing on credit cards. Personal loan interest rates can be as low as 3.49 percent if you have a high credit score, but can go above 29.99 percent for a borrower with a much lower score. The national average is an interest rate of 9.63 percent. 

Compared to other forms of borrowing, personal loans offer the advantage of a fixed rate for the term of the loan and a clear repayment schedule. That can make for easier debt consolidation, especially if you choose to transfer the remaining balance to a 0 percent credit card. This is only a prudent strategy, however, if you are able to pay off the balance before the end of the grace period and do not make any extra payments or withdrawals with the card. 

When a Personal Loan Is Not the Best Option

Applying for a personal loan is a less attractive option if your debt to income ratio is already near or above 36 percent. This is the nominal benchmark above which most lenders would see additional borrowing as a risk. Neither does it make much financial sense to take a personal loan for an amount that you already hold in savings or could borrow from friends and family. Watch out for fees too. Lenders can charge up to 8 percent of the overall loan amount to process the application and run credit checks.

With the suite of tools from SmartCredit, you can stay on top of your credit score and give yourself the best chance of securing the widest range of options on personal loans. To find out more, start here


Forbes – 5 Personal Loan Requirements To Know Before Applying
CNBC – 10 Questions to Ask Before Applying for a Personal Loan
U.S. Gov – Credit Issues

credit score for personal loan

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