What credit score is needed for a personal loan?

A personal loan generally refers to a kind of small loan that borrowers can spend as they see fit.

Personal loans may be useful for making big purchases or consolidating high-interest debts. But before you decide to take out a personal loan, it’s important to understand how your credit scores could affect your loan application.

Key takeaways

• Credit score requirements for getting a personal loan vary by lender. 
• Having a higher credit score may make it easier to qualify for a personal loan and get better loan terms, like a lower interest rate.  
• You may be able to improve your chances of getting a personal loan by using credit responsibly over time. That means making on-time payments every month and maintaining a low credit utilization ratio.
• Some potential alternatives to personal loans include credit cards, balance transfers, peer-to-peer (P2P) lending companies and cash advances. 

Borrowers may need at least a fair credit score to qualify for an unsecured personal loan. But keep in mind that the minimum credit score required for a personal loan varies by lender. And there are different types of credit scores that may be judged differently.

According to the Consumer Financial Protection Bureau (CFPB), having a higher credit score typically makes it easier to qualify for a loan. And higher scores may help you get better loan terms, like a lower interest rate. So it’s a good idea to work toward a good or excellent credit score by using credit responsibly over time.

Here are a few things other than your credit score that might be part of a personal loan application:

• Proof of employment: Lenders may want to verify that you’re employed. They might also want to know how long you’ve been at your job. 
• Proof of income: Lenders may want to verify how much income you have by requesting your pay stubs or bank statements. 
• Debt-to-income (DTI) ratio: Your DTI ratio measures how much debt you have compared with how much income you have. Your total debt might include things like student loans, car loans and credit card balances.

While it may be harder to get a personal loan with a low credit score, it’s not impossible. Some lenders may have more flexible credit score requirements. Some may not check your credit at all. 

But having a lower credit score may lead to less favorable loan terms, like a higher interest rate. And no-credit-check personal loans—like payday loans—come with their own unique risks and high costs. They’re even illegal in some states. Before taking out any loan, make sure you fully understand its terms, risks and costs.

Many personal loans are unsecured, meaning you don’t have to put down money or collateral to be approved. But with a secured personal loan, borrowers have to back the loan with collateral like a car, home or cash. If the borrower can’t repay the loan, the lender may take that collateral to help cover their losses. Collateral is why secured personal loans typically have less strict qualification requirements. 

A co-signer agrees to be responsible for paying back the loan if the borrower can’t. Having a co-signer with higher credit may increase the chance of being approved for a loan and getting better loan terms.

Working to improve your credit score can be part of helping you get better loan offers. Here are a few things that may help you monitor your credit and boost your credit scores over time: 

• Make payments on time. Payment history can be an important factor when it comes to your credit scores. Missed or late payments can cause your credit score to dip. Plus, they can lead to things like late fees and interest rate increases. Setting up automatic payments may be one way to help ensure you pay on time, every time. 
• Keep your credit utilization ratio below 30%. Your credit utilization ratio is how much of your available credit you’re using. The CFPB recommends keeping your credit utilization ratio below 30% to help show lenders you can manage credit responsibly. The CFPB also notes that paying more than the minimum credit card payment—and paying off your entire monthly balance whenever possible—can be a part of maintaining a low credit utilization ratio. 
• Keep an eye on your credit. Regularly monitoring your credit can help you know where you stand before applying for a personal loan. It’s also important to check your credit reports for errors that may be affecting your scores.
• Avoid too many hard inquiries. Applying for new credit can trigger a hard inquiry. A single hard inquiry will likely only cause your scores to dip temporarily by a few points. But too many hard inquiries can have a larger negative impact on your credit. So it’s important to limit hard inquiries and only apply for the credit you need. 
• Beware of quick credit score fixes. Improving your credit scores takes time. And services that promise to boost or repair your credit quickly may be a scam, according to the CFPB. So if you’re looking for help, consider consulting a qualified credit counselor. 

Before you take out any kind of loan, it’s important to consider your options so you can make the right choice for you. Here are some potential alternatives to personal loans: 

• Credit cards: When used responsibly, a credit card can be a useful alternative to a personal loan. If you’re looking for options, you can see whether you’re pre-approved without affecting your credit score.
• Balance transfer: A balance transfer lets you move debt to a new or different credit card. It could help you combine your loans at a lower interest rate. But be sure you understand how it works and whether there are any fees or restrictions.
• P2P lending companies: Companies that connect lenders and borrowers through online services could be another possibility. P2P lending companies might vary in how they review lenders and borrowers, including what’s required to qualify for a loan. The CFPB recommends that you make sure you understand all fees and interest charges associated with these types of loans.
• Credit card cash advance: A cash advance is similar to using a debit card to get cash. But instead of the money coming from your bank account, it’s taken from your available credit. Cash advances can be convenient, but they often come with fees and a higher interest rate than credit card purchases. So you may want to consider less costly options.

If you need help deciding which option is right for you, consider talking with a qualified financial adviser.

The minimum credit score required to get a personal loan varies by lender and loan. Having a higher credit score typically makes it easier to qualify for a personal loan. Plus, higher scores can help you get better loan terms. And using credit responsibly over time—by doing things like making on-time payments and maintaining a low credit utilization ratio—may help you improve your credit scores. 

Not sure where your credit score stands? With CreditWise from Capital One, you can access your TransUnion® credit report and VantageScore® 3.0 credit score anytime—without hurting your credit scores. You can even explore the potential impact of financial decisions, like taking out a personal loan, before you make them with the CreditWise Simulator. CreditWise is free for everyone, even if you’re not a Capital One cardholder.