What credit score is needed for a personal loan?

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 between 580 and 660.

But there may be options for borrowers with credit scores above or below that range.

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 could help improve credit scores.

• Credit cards, balance transfers and cash advances are potential alternatives to personal loans.

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. 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 when you have higher credit scores.

• Term length: With a fair credit score, you may only have the option of a short-term loan. But with higher credit scores, you could have more time to pay off the 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.

In addition to your credit scores, these factors might impact approval of your 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.

If you have low credit scores, it could be harder to get some personal loans. But there are potential options: Having a co-signer with higher credit scores may increase the chance of being approved for a loan and getting better loan terms. Secured personal loans could have less strict credit requirements. That’s thanks to collateral, which backs the loan but can also be taken if the borrower can’t repay the loan.

You might also see loans advertised that don’t require credit checks. But loans like these, such as 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.

Working to improve your credit scores could enhance your chances and help you get better loan offers. But the CFPB says to beware of quick credit score fixes, saying services that promise to boost or repair your credit quickly may be a scam. If you’re looking for help, the agency recommends consulting a qualified credit counselor.

If you already have a credit card, here are a few actions you can take to help you 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 scores to dip. Plus, missed or late payments 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. 

• Avoid too many hard credit inquiries. Applying for new credit can trigger a hard credit 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 them and only apply for the credit you need.

Before you take out a personal loan, it might be worth considering other options too. When used responsibly, a credit card can be a useful alternative to a personal loan, providing access to a revolving line of credit when needed. Balance transfers and cash advances are two ways you might handle debt and expenses. 

You can decide whether they’re good options by understanding how they work and how you’ll manage payments. For example, cash advances can offer convenient access to cash, but they typically come with fees and a higher interest rate than standard purchases.

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.

With CreditWise from Capital One, you can access your credit report and scores anytime. CreditWise is free, and using it won’t hurt your credit scores. You can also access free copies of your credit reports through AnnualCreditReport.com.