What credit score do you need for a personal loan?

In general, a personal loan refers to a small loan that borrowers can spend as they see fit. It can be useful for making big purchases or consolidating high-interest debts. 

What you’ll learn:

• Having higher credit scores may make it easier to qualify for a personal loan and get better loan terms. 

• Lenders have different credit score requirements for approving a personal loan. 

• Making on-time payments every month and maintaining a low credit utilization ratio can help improve credit scores.

• Credit cards, balance transfers, peer-to-peer (P2P) lending companies and cash advances are potential alternatives to personal loans.

The minimum credit score required for a personal loan varies by lender. If a lender requires a fair credit score, that might mean a score somewhere between 580 and 660.

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

If you have low credit scores, it could be harder to get a personal loan. But it’s not impossible. Potential options include:

• Secured personal loan: 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, a home or cash. If the borrower can’t repay the loan, the lender may take that collateral to help cover its losses. Collateral is why secured personal loans typically have less-strict qualification requirements. 

• Co-signer: 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.

• No-credit-check loan: Some lenders may have more flexible credit score requirements. Some may not check your credit at all. But 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.

Your credit scores can affect whether you qualify for a personal loan. That’s because in the eyes of a lender, the higher your credit scores, the less risky you are as a borrower. 

Aside from eligibility, your credit scores may also impact:

• Interest rate: The better your credit scores, the better your interest rate might be.

• Loan amount: You may qualify for a larger loan with higher credit scores.

• Term length: With a fair credit score, you may only have the option of a short-term loan.

• Fees: Some lenders charge what’s known as an origination fee to cover the cost of processing the loan application. Whether you’re charged one or how much you’re charged might depend on your credit scores.

Working to improve your credit scores can help 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 by a few points temporarily. 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.

Other than your credit scores, these factors might also 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.

Before you take out a personal loan, it might be worth considering other options too. Here are some potential alternatives:

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 scores. If you have a credit card, you might have options like:

• Balance transfers: 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.

• Cash advances: 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.

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.

You could also 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.

Not sure where your credit score stands? With CreditWise from Capital One, you can access your credit report and scores anytime, without hurting your credit scores. You can even explore the potential impact of taking out a personal loan with the CreditWise Simulator. CreditWise is free for everyone, even if you’re not a Capital One cardholder. You can also access your credit reports through AnnualCreditReport.com.