What Is the Optimal Credit Score for a Personal Loan?

If you want to secure a personal loan, the potential lender is going to need to know your credit score. There really isn’t any way around this.

But, you don’t need to fear. Rather, you should understand what your credit score is before you begin looking for lenders.

Once you know your score, you’ll be set to apply. Keep in mind that credit score requirements for personal loans will vary from lender to lender.

While it’s true that the higher your score is, the more likely it is that your application will be accepted. You’ll also be more likely to get a better rate and better term.

Many lenders will prefer borrowers with good or excellent credit scores (generally 690 FICO or higher).

Some lenders will accept borrowers with average or bad credit (below 630).

Generally speaking, the minimum credit score to qualify for a personal loan across the board is typically between 610 and 640.

What Do Lenders Look for to Accept Potential Borrowers?

Even if you have a lower score, you don’t have to lose hope. Your score isn’t the only thing a lender looks at. They’ll look at your credit history, your income, your debts, your ability to make payments, and your overall creditworthiness.

Lenders have a wide range of criteria they look at when considering a loan application. Most will look at your credit report and history. Others will also look at alternative data, like what field you work in or where you went to university.

Here are a few of the basic requirements most lenders look at when considering a potential borrower:

1. Your Credit Score

Every lender will look at your credit score. They will likely use the FICO credit scoring model. However, others will use the VantageScore scoring model. Others create their own scoring systems based on different data they collect from potential borrowers.

2. Your Credit History

Lenders will analyze how long you’ve had a credit history when checking your loan application. Generally speaking, lenders like to see three years minimum of credit history when considering an applicant.

The longer your history, the better. If you have more credit accounts in your history, it shows that you’ve been diligent to handle much, which means you’ll probably be able to handle more.

Borrowers who have a few credit cards, an auto loan, and a mortgage, showing that they’ve made regular, on-time payments will be more likely to qualify for a loan.

3. Your Debt-to-income Ratio (DTI)

Another data point lenders will look at is a borrower's debt-to-income ratio. This is calculated by looking at monthly debt expenses compared to monthly income.

Lenders want to see that it would even be possible for a borrower to take on another monthly payment based on how much money they make and how much debt they’re already having to pay each month.

4. Your Monthly Cash Flow

Another common data point lenders will look at when analyzing a potential borrower is their monthly cash flow. A borrower’s debt-to-income ratio doesn’t consider non-debt expenses like rent, groceries, and gas.

Lenders will sometimes look at bank account transactions to see just how much cash flow is free every month. The more free cash flow you have, the more confident a lender will feel to approve your application.

Can You Still Get a Personal Loan with Fair or Bad Credit?

Even though lenders will commonly only accept borrowers who have a minimum FICO score of 610 to 640, not all hope is lost if you score a bit lower than these.

While credit score is given a lot of weight when it comes to considering a worthy applicant, it’s not everything.

Even borrowers with fair or bad credit can qualify for loans. The one caveat is that they’re likely going to have to pay a higher annual percentage rate (APR).

This means instead of paying low interest on your loan, you’ll probably have to pay higher interest. Instead of getting a personal loan with 8% interest, you could end up paying 35% or higher.

A lower credit score may also impact the amount you’re able to secure. A lender will be less likely to lend you a large amount if your score is too low. They may cut your request from $20,000 to $7,000 if your score is on the low end.

Keep in mind that every time you apply for a loan, it can cause a temporary dip in your credit score. It’s important to always ensure you can pre-qualify for a loan using a soft credit check (that won’t impact your credit score).

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