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A credit score is one factor used in a lender’s assessment of your creditworthiness when you apply for a lending product, such as a loan, line of credit, or credit card. It can also be a factor in lease approval, new utilities setup, and insurance rates. You can have more than one credit score, depending on what credit scoring model a lender uses.

One type of credit scoring model is the FICO® Score, which is used by 90% of top lenders in the U.S. Since it’s such a widely used determiner, consumers are wise to pay close attention to their own score.

What Is a Credit Score?

Consumers often use the words “credit score” to refer to FICO credit scores, but a credit score could be one of several scores. Generally speaking, credit scores are created with a mathematical formula that weighs different financial behaviors to arrive at a three-digit score that summarizes a consumer’s creditworthiness. Each of your credit scores depends on the formula used to calculate it and they may vary depending on which information about you was pulled into the formula and how different behaviors, such as your bill-paying history and unpaid debt level, were weighted.

What Is a FICO Score?

Let’s look specifically at the FICO Score, since it is so often used by lenders. The FICO Score is a trademark of the Fair Isaac Corporation. It was the first widely used, commercially available score of its type. FICO Scores, like other credit scores, compress a person’s credit history into one algorithmically determined score.

Because FICO Scores (and other credit scores) are based on analytics rather than human biases, the intention is to make it easier for lenders to make fair lending decisions.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options.

What Is the FICO Score Range?

FICO’s base range is 300 to 850: The higher the score, the lower the lending risk a lender might consider you to be. The FICO Score is divided in this way:

•   Exceptional: 800 to 850

•   Very Good: 740 to 799

•   Good: 670 to 739

•   Fair: 580 to 669

•   Poor: 300 to 579

Recommended: What Is Considered a Bad Credit Score?

How Is a FICO Score Calculated?

There are five main components of what affects a FICO Score, each having a different weight in the calculation:

•   Payment history: 35%

•   Amounts owed: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

About two-thirds of your base FICO Score depends on managing the amount of debt you have and making your monthly payments on time. Each of the three major credit bureaus — Experian®, Equifax®, and TransUnion® — supply information for the calculation of your credit score, so it can vary slightly even if your creditworthiness doesn’t fluctuate.

The base FICO Score range may not be the range used in all credit and lending decisions. There are also industry-specific scores, such as one specifically for auto loans (FICO Auto Scores), others for credit card applications (FICO Bankcard Scores), and multiple FICO Scores used by mortgage lenders. There is also an UltraFICO Score for consumers with limited credit histories that factors other banking behaviors into the tabulation.

Industry-specific FICO Scores range from 250 to 900, compared to the 300 to 850 range for base scores.

What Is a Good FICO Score?

Strictly referencing the base FICO Score range, a “good” score is between 670 and 739 on the overall scale of 300 to 850.

But what’s considered acceptable for credit approval might vary from lender to lender. Each lender has its own requirements for credit approval, interest rates, and loan terms, and may assign its own acceptable ranges. Lenders may also use factors other than a credit score to determine these things.

Recommended: Average Personal Loan Interest Rates & What Affects Them

Why Is a FICO Score Important? What Is a FICO Score Used For?

As mentioned above, the FICO Score is used by 90% of top lenders in the U.S. When a consumer applies for a loan or other type of credit, the lender will look at their credit report and credit score. If there are negative entries on the credit report, which may be reflected in a decreased FICO Score, the applicant may not have a chance to explain those to the lender. Especially in mortgage lending decisions, the lender may have a firm FICO Score requirement, and even one point below the acceptable number could result in a denial.

But what if you’re not applying for credit in the traditional sense? Your FICO Score is still an important number to pay attention to because it’s used in other financial decisions.

•   Renting an apartment. Landlords and leasing agents generally run a credit check during a lease application process. They may or may not look at the applicant’s actual credit score — landlords have a lot of flexibility in how they make leasing decisions — but they do tend to look at the applicant’s credit history and how much debt they have in relation to their income. Both of these factors go into a FICO Score calculation.

A few late payments here and there may not affect your ability to rent an apartment, but a high debt-to-income ratio may. If you have a lot of income going toward debt payments, the landlord may be concerned that you won’t have enough income to pay your rent.

•   Insurance. One of the industry-specific FICO Scores is formulated for the insurance industry (think auto insurance and property insurance). Insurers will typically look at more than just a person’s FICO Insurance Score, but it is one factor that goes in determining qualification for insurance and at what rate. The assumption is that a person who is financially responsible will also take more care when it comes to their home and car.

•   Utilities. You may not think of a utility bill as a debt, but since utilities like gas, electric, and phone are billed in arrears, they technically are a form of debt. (“Billed in arrears” means that you are billed for services you have already used.) Utility companies want to make sure that you will be able to pay your monthly bill, so they may run a credit check, which may or may not include looking at your FICO Score.

Recommended: What Credit Score Is Needed to Rent an Apartment?

What Affects Your FICO Score?

We briefly touched on how a FICO Score is calculated, but what goes into those different categories? Let’s look at those in more detail.

Payment History (35%)

Do you tend to pay your bills on time or do you have a history of late or missed payments? “Payment history makes a bigger impact on a person’s credit score than anything else — 35%,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “So the most important rule of credit is this: Don’t miss payments. Timely payments are crucial, and making at least the minimum payment on a revolving credit line can make a positive impact on a person’s credit score.”

Both installment (personal loans, mortgage loans, and student loans, for example) and revolving credit such as credit cards can affect your payment history. Since it’s such an important factor, how can you make sure it’s a positive one for you?

•   Making payments on time, every time, is the best way to make sure your payment history is a positive one. Having a regular routine for paying bills is a good way to accomplish this.

•   Automating your payments may help you make at least the minimum payment on credit accounts.

•   Checking your credit report regularly for errors or discrepancies can help catch things that might have a negative effect on your FICO Score if left uncorrected. You can get a free credit report from each of the three credit bureaus once per year at AnnualCreditReport.com.

Amounts Owed (30%)

The amount of debt you owe in relation to the amount of debt available to you via your various lines of credit is called your credit utilization ratio, and it’s the second-most important factor in the calculation of your FICO Score. Having debt isn’t at issue in this factor, but using most of your available debt is seen as relying on credit to meet your financial obligations.

Credit utilization is based on revolving debt, not installment debt. If you’re keeping your credit card balance well below your credit limit, it’s a good indicator that you’re not overspending. If you have more than one credit card, consider the percentage of available credit you’re using on each of them. If one has a higher credit utilization than the others, it might be a good idea to use that one less often if you’re trying to positively impact your FICO Score.

Length of Credit History (15%)

This factor’s percentage may not be as high as the previous two, but don’t underestimate its importance. As with payment history, lenders tend to look at a person’s credit history as predictive of their credit future. If there is no credit history or short credit history, a lender doesn’t have much information on which to base a lending decision.

Since the amount you owe is such an important factor in your FICO Score, you might think that paying off and closing credit accounts would have a positive effect on your score. But that might not be the best strategy.

Revolving accounts like credit cards can be a useful tool in your financial toolbox if used responsibly. A credit card account with a low balance and good payment history that has been part of your credit report for many years can be an indicator that you are able to maintain credit in a responsible manner.

Installment loans like personal loans are meant to be paid off in a certain amount of time. The account will remain on your credit report for 10 years after it’s paid off.

Paying off a personal loan is certainly a positive thing, but paying off a personal loan early could cause the account to stop having that positive effect earlier than it otherwise would.

Credit Mix (10%)

Having multiple types of credit can have a positive effect on your FICO Score. Being responsible with both revolving and installment credit accounts shows lenders that you can successfully manage debt.

•   Revolving accounts are those that are open-ended, such as a credit card. You can borrow money up to your credit limit, repay it, and borrow it again. As long as you’re conforming to the terms of the credit agreement, the account is likely to have a positive effect on your credit report and, therefore, your FICO Score.

•   Installment accounts are closed-ended. There is a certain amount of credit extended to you and you receive that money in a lump sum. It’s repaid in regular installments over a set period of time. If you need additional funds, you must take out another loan. A personal loan is one example of an installment loan.

Credit mix won’t make or break your ability to qualify for a loan, but having different types of debt indicates to lenders that you’re likely to be a good lending risk.

New Credit (10%)

Though lenders like to see that a person has been extended credit in the past, too much new credit in a short amount of time can be a red flag.

When you apply for a loan or other type of credit, the lender will typically look at your credit report. This is called a credit inquiry and can be a hard inquiry or a soft inquiry. A soft inquiry may be made by a lender to pre-qualify someone for credit or by a landlord for a lease approval, for example.

During a formal application process, a lender might make a hard inquiry into your credit report, which can affect your credit score. FICO Scores take into account hard inquiries from the last 12 months in your credit score calculation, but a hard inquiry will remain on your credit report for two years.

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

FICO Score vs. Credit Score

As we’ve seen, these two terms — FICO Scores and credit scores — are often used interchangeably. More accurately, though, is that a FICO Score is one type of credit score, the one often used by lenders when making their decisions. There are multiple types of credit scores, each of them using analytics to create a rating that illustrates a person’s creditworthiness. One of the more commonly used alternatives to the FICO Score is the VantageScore®.

FICO Score vs. VantageScore

You won’t always know which credit score a lender is using to assess your qualifications as a borrower. But if it isn’t a FICO Score there is a good chance it’s the VantageScore. (Some lenders feed both FICO and VantageScores into their own proprietary scoring tool.) The VantageScore was created by the three nationwide credit reporting agencies — Equifax, Experian and TransUnion. Like the FICO Score, it has a range of 300 to 850. The formula for computing a VantageScore is slightly different from that for a FICO Score, but working to polish one will likely have a positive effect on the other.

How to Positively Impact Your FICO Score

Good credit hygiene can have a beneficial effect on your FICO Score that spills over into other types of credit scores as well. As you think about what affects FICO Score, here are some steps to take:

•   Check your credit reports. Request corrections for any errors you find (they do occasionally happen). You can

•   Pay your bills on time. Set up automatic payments from your bank account to make sure nothing slips through the cracks.

•   Avoid maxing out credit cards or lines of credit. If you tend to use one card to the max, put it on ice for a while and reach for a different card, if you have one. Or request a larger credit limit on the card you tend to overuse — assuming, that is, that you are keeping up with your payments.

•   Diversify your credit mix. If you use credit cards for everything, even cash advances, consider a personal loan the next time you need a larger sum for a significant expense. Personal loans often have lower interest rates than credit cards anyway.

The Takeaway

Your FICO Score is affected by how you manage your personal finances, whether that’s a personal loan, line of credit, credit card, or other type of credit product. Although it’s not the only credit score lenders use, it is the one used in the majority of lending decisions in the U.S. Personal loans are one financial tool that can be used to add some variety to your credit mix. If managed responsibly with regular, on-time payments, your FICO Score could be positively affected by having an installment loan like this in the mix.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is a FICO score the same as a credit score?

It’s common to wonder what is a FICO Score vs. a credit score. The two are not the same thing, although a FICO Score is one of the most commonly used types of credit score. Each type of credit score has its own distinctive scoring model. They all aim to distill a consumer’s financial behavior into a number that lenders factor into their decision about whether to loan to the consumer.

What is considered a good FICO Score?

A “good” FICO Score falls between 670 and 739 on a FICO Score range that runs from 300 to 850.

Why do I have multiple credit scores?

Everyone has multiple credit scores because there are different data analytics firms and agencies that compile information about consumers’ credit history. Within many of these organizations, there are also different types of credit reports for different purposes. There are FICO Scores, for example, that are tailored to auto loans and insurance industry needs.

Does checking your credit score lower it?

Checking your credit score — even doing so multiple times — will not damage it. Requesting a copy of a credit report will also not damage your credit score.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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A credit card limit is the maximum you can spend before a repayment is required. For those who pay their balance on time to avoid interest and fees, a high limit provides valuable spending power. However, for those who view it as permission to overspend, it can lead to financial trouble.

While you can request an increase, issuers often grant them automatically to cardholders who manage credit well. But is a higher spending limit always a good thing? It depends on your financial situation. Here’s how to know if your credit card spending limit is too high.

How Does My Credit Card Spending Limit Work?

Credit cards are a form of revolving debt, which means that there is an upper spending limit. However, the credit can be repaid and used again. It revolves between being available to use, being unavailable because it’s being used, and being available to use again after it’s been repaid.

A credit card issuer typically bases the credit limit on factors such as the applicant’s credit score, income, credit history, and debt-to-income ratio. However, every credit card company differs in which factors it considers and how much emphasis it places on each component. The current average credit card limit is around $30,000.

It’s important to keep in mind that a credit limit represents the maximum you can spend, not a recommendation for spending. In fact, a good rule of thumb is to spend no more than 30% of your available credit to maintain healthy credit. Many financial experts suggest aiming even lower — closer to 10%. “Generally, the further away a person is from hitting their credit limit, the healthier their credit score will be,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

Why Your Credit Card Issuer Increased Your Spending Limit

Your spending limit isn’t set in stone, though. Even if you haven’t specifically requested a credit limit increase, your credit card issuer may automatically increase the credit limit on your card.

There are various reasons this might happen.

•   Your credit has improved, resulting in a higher credit score.

•   Your income has increased.

•   Your card offers a built-in pathway to a higher credit limit.

•   The card issuer wants to retain you as a customer by offering a higher credit limit.

Credit card issuers may also increase customer credit limits to encourage responsible borrowers to spend more on their credit cards. Generally, the more cardholders spend on their cards, the better it is for the issuer’s bottom line.

Pros of a High Credit Card Spending Limit

Having a high spending limit on your credit card comes with a number of benefits:

•   Emergency safety net. A higher limit provides a larger financial cushion for unexpected expenses, such as urgent home repairs, medical bills, or car maintenance, without needing to apply for a new loan.

•   Lower credit utilization. Your credit utilization rate is the relationship between your spending limit and your balance at any given time. If your limit is $10,000, and your balance is $1,500, your credit utilization is 15%. Generally, the lower your credit utilization rate, the better (below 30% or closer to 10% is generally best).

•   Better rewards. If you have a rewards credit card, having a higher spending limit enables you to put more of your monthly expenses on a single card, helping you accumulate cash back, points, or miles faster.

Cons of a High Credit Card Spending Limit

As attractive as the benefits might sound, there can be drawbacks to having a high credit card spending limit. Here are some to consider:

•   Risk of overspending. The most significant drawback is the temptation to spend more than you can comfortably afford just because the credit is available.

•   Potential for high-interest debt: If overspending leads to a high balance, the high limit can result in substantial debt and steep interest charges.

•   Future borrowing risks: Some lenders may view a very high total credit limit as a risk when you apply for a loan (such as a mortgage), as it represents a large amount of potential debt you could incur at any time.

What Happens if You Go Over Your Spending Limit

Unless you’ve opted into over-limit coverage, you generally can’t go over your spending limit on a credit card. Any transaction that pushes you beyond your credit limit will simply be denied.

If you have opted into over-limit coverage, however, the issuer will allow you to spend beyond your limit but will typically charge you a fee. These fees generally run between $25 and $35 but, by law, can’t exceed the amount of the overage. So if you went over your credit limit by $18, the issuer can’t charge you more than $18.

Before you opt in to an agreement like this, the credit card issuer must tell you what the potential fees will be. They must also provide you with confirmation that you opted in.

If you opted in to an over-the-limit agreement, but no longer want it, you can opt out at any time by contacting your credit card issuer’s customer service department.

Recommended: Maxed-Out Credit Card: Consequences and Steps to Bounce Back

Taking Control of Credit Card Debt

A higher spending limit can be a good thing if it’s used responsibly. If it leads to over spending, on the other hand, you may find yourself carrying a high balance from month to month and racking up interest. If that happens, here are some strategies that can get you back on track:

•   Pay more than the minimum: Look for ways to temporarily reduce or eliminate unnecessary expenses (like dining out or subscriptions) and put any savings you uncover towards paying down your balance.

•   Look for a balance transfer card: If you can qualify for a 0% interest balance transfer credit card, you can avoid paying interest on your balance for a period of time (typically for 12 to 21 months), making it easier to pay off. Just watch for transfer fees, which often run from 3% to 5%.

•   Consider a credit card consolidation loan: Taking out a fixed-rate personal loan with a lower interest rate than the card(s) you’re paying to pay off can help you save on interest and potentially pay off your debt faster. If you have multiple debts, a consolidation loan can also simplify repayment by rolling multiple monthly bills into one.

The Takeaway

A high credit card spending limit can be a beneficial tool, offering a financial safety net and helping to keep your credit utilization low, which can positively impact your credit. However, it only serves as an asset if you use it responsibly and avoid the temptation to overspend. If a high limit encourages you to take on excessive, high-interest debt, it may be too high for your current financial situation.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What’s the average credit card limit?

The current average credit card limit is around $30,000. However, credit limits can vary significantly based on factors like your credit score, income, and credit history. It’s important to remember that your credit limit is the maximum you can spend, not a suggested spending goal. Financial experts typically recommend keeping your spending, and thus your credit utilization rate, below 30% of your limit — and ideally closer to 10% — to maintain healthy credit.

Can a spending limit be too high?

Yes, a spending limit can definitely be too high for certain individuals. While a high limit is beneficial for maintaining a low credit utilization rate and offers an emergency cushion, it can also tempt people to overspend. If a high limit encourages you to carry a large, revolving balance and incur high interest charges that you struggle to pay off, then it is likely too high for your current financial habits and situation.

Is it bad to use 50% of your credit limit?

Using 50% of your credit limit is generally considered too high and can negatively impact your credit. This high usage translates to a 50% credit utilization rate, which is well above the recommended maximum of 30%, and far from the ideal 10%. A high credit utilization rate signals to lenders that you may be over-reliant on credit, financially overextended, and a higher risk of default.

Photo credit: iStock/mixetto

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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You can get a personal loan from many banks, online lenders, and credit unions. Personal loans, which are typically unsecured loans, can be used to pay for just about any large expense.

You might use it to pay down credit card debt, an unexpected medical bill, or the cost of home renovations. Some people use these loans to fund a wedding or a big vacation. Given the many ways these versatile loans can be spent, it’s no surprise that personal loans are a popular choice. The latest data shows that 25.9 million Americans had unsecured personal loans, totaling about $269 billion, in the second half of 2025.

If you’re thinking of getting a personal loan, read on to learn more about where you can get one and the pros and cons of each option.

Where Can You Get a Personal Loan?

Personal loans are generally available through three main markets: banks, credit unions, and online lenders. There are other types of personal loans available through physical storefronts and online, such as payday loans and pawnshop loans, but it’s wise to avoid these options. You’ll learn why later in the article.

Banks

National and regional banks often offer personal loans, which you can typically apply for online or in person. A bank may be the first choice for consumers who are already account holders at that institution, especially since the loan amount can usually be deposited quickly and directly into their checking account.

Credit Unions

Credit unions are another popular option for where to source a personal loan — though generally, these loans are only available to those who are already credit union members.

Each credit union has its own eligibility requirements to open an account or otherwise do business with it, which may be based on where you live or what industry you work in. However, if you do have access to a credit union, you may find lower interest rates and more favorable terms there than at other financial institutions.

Recommended: Is It Hard to Get a Personal Loan?

Online Lenders

Online lenders have proliferated over the years. These days, a personal loan can be easy to find from one of these sources with just a few clicks.

Online lenders may offer instant or near-instant loan decisions. They also don’t require you to be a member of or an account holder at any specific financial institution. That said, it may take longer to receive your check or transfer than it would if you were borrowing from a bank or credit union where you already hold an account.

Of course, you’ll want to carefully review the personal loan interest rates and fees you’re offered to ensure that they’re suitable for your circumstances.

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Where Can You Get a Personal Loan With Bad Credit?

You can get a personal loan with bad credit from a few lenders, such as online ones and payday lenders, but it’s important to proceed with caution.

Here’s a little important background information:

•   A personal loan with no collateral, also known as an unsecured personal loan, can be tough to qualify for if your credit history is less than perfect.

•   Since there’s no collateral, such as a house or a car, for the lender to take if you fail to repay the loan, unsecured personal loans often come with steeper qualification requirements than other types of loans.

•   They may also have higher interest rates, especially for those whose credit could use some rebuilding. Some lenders specifically market their products to people with lower credit scores — but beware. Sometimes these loans come with predatorily high interest rates and other drawbacks.

Online Private Lenders

The combination of convenience and ubiquity of the online personal loan market can be a mixed blessing. Sure, it’s easy to find a loan when you need one, but it’s also easy to fall into a bad deal.

Some online lenders specialize in offering loans for poor or no credit, but be sure to read all the fine print before you hit “submit” on your application. The loans may come with soaring interest rates, high origination fees, or hidden costs. Do your homework and vet the business you’re borrowing from to make sure it’s legitimate. You may want to check with the Better Business Bureau to search for any complaints on file and for reliable, verified reviews.

Payday Lenders

Payday loans have been around for a long time, but that doesn’t mean they’re a good option.

Designed to be repaid quickly (i.e., at the borrower’s next payday), these short-term cash loans may be for small amounts but often come with astronomical interest rates. According to the Consumer Financial Protection Bureau, it’s not uncommon for these quick-turnaround loans to have annual percentage rates as high as 400%!

In almost every instance, when comparing payday loans vs. personal loans, payday loans are worth avoiding. Other forms of unsecured loans will likely come with lower interest rates and more favorable repayment terms. Fortunately, it’s possible to find loans from reliable lenders — even with imperfect credit.

Banks and Credit Unions

You can get an unsecured personal loan from a bank or credit union if you have bad credit. Each financial institution sets its own qualification requirements for its loans, so it’s worth shopping around to find the one that fits your financial needs. Additionally, they may have other products that could work for you, such as secured credit cards or share-secured loans.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware of lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

What Are Some Pros and Cons of Different Types of Lenders?

Each type of lender has pros and cons. Here are some things to consider while you’re searching for the one that’s right for you.

Personal Loans From Banks

Personal Loans From Credit Unions

Personal Loans From Online Lenders

Choosing a Personal Loan Lender

No matter where you choose to apply for a personal loan, a good way to determine whether it’s the right loan for you is to look at the fine print. The lender matters less than the loan, and knowing what you’re agreeing to ahead of time is key to avoiding an unpleasant financial surprise.

Here are the main factors to look for when shopping around for a personal loan:

•   Fees, such as origination fees, early repayment penalties, and late fees, can increase the total amount you’ll spend on your loan in no time. Ideally, you’ll want to look for a lender that charges few fees — or none at all.

•   Interest rates can vary widely with unsecured personal loans, from as low as 6.49% to as high as 36% or more. While your specific options will vary based on your credit history and other financial information, it’s good to shop around for a desirable interest rate.

•   Loan amount caps may be relatively small (e.g., $1,000) or very large ($100,000 or more). Whatever your financial need, you want to ensure your lender will offer enough for you to cover whatever expense you’re paying for.

Recommended: Personal Loan Calculator

The Takeaway

There are many personal loan lenders to choose from, including banks, credit unions, and online lenders. Whether you need money to pay for an unexpected expense, such as a car repair, or you’re planning the ultimate 40th birthday party, it’s wise to shop around and compare interest rates, fees, and speed of funding.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Where can you get a personal loan?

In terms of where to get a personal loan, there isn’t one “best” place. When comparing banks, credit unions, and online lenders, look at interest rates, fees, customer reviews, and how quickly you would receive the funds to determine the option that suits you best.

Where can you get a small personal loan?

Where to go to get a small personal loan depends on a variety of factors. Would you be more comfortable working with a large lender or a small, community-based lender for your small loan? Do you already have an account at a financial institution that also offers personal loans?

Where is the easiest place to get a personal loan?

If you’re looking for a personal loan lender, it might be better to start at a financial institution where you already have an account. Your financial information will already be in their records, making the process faster and easier. Although online lenders may promise fast approval and funding, be sure to research options carefully and make sure the business is legitimate and interest rates are affordable.

Photo credit: iStock/solidcolours

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Generally speaking, the better your credit score, the better your potential loan rates and offers may be. The reason is that your credit score tells lenders how much risk you pose as a borrower. A good credit score may qualify you for what’s known as a prime loan.

Read on to learn what a prime loan is and how it works.

Understanding a Prime Loan

To understand a prime loan, it can help to understand the prime rate. Banks establish the prime rate as the interest rate they give to their most creditworthy customers, generally large corporations that borrow and repay loans on a regular basis. The rate is based on the federal funds rate set by the Federal Reserve.

The prime rate is a critical financial benchmark. Banks and other lenders typically use it to set interest rates for their various consumer products, including credit cards, personal loans, personal lines of credit, auto loans, and home loans. Lenders use the prime rate as a baseline, then add a margin on top of the prime rate to determine a loan’s interest rate. How much more a borrower pays above the prime rate depends on their creditworthiness.

Many loans are based on the prime rate, so it can be a good rate to track if you’re in the market for any type of lending product. For example, if you’re considering a fixed-rate mortgage or personal loan, and the prime rate is currently low, you may be able to lock in a lower rate for the life of your loan. If you’re considering variable-rate debt, such as a credit card or home equity line of credit, your rate might start low but go up if market rates rise. If market rates decline, on the other hand, your rate could go down.

Prime Loan Borrowers

Lenders use the term “prime” to refer to high quality in the consumer lending market — including borrowers, loans, and rates. Prime loans generally have competitive interest rates and are available to borrowers who have a low default risk and good or better credit scores. The opposite of prime is subprime, a term for riskier loans with a higher interest rate.

According to the Consumer Finance Protection Bureau, borrowers with a credit score of 660-719 are generally considered prime borrowers. Those with scores above 720 are considered super-prime borrowers and receive even more favorable interest rates.

Here are the five credit score categories for borrowers:

Knowing your credit score can help you assess which category you belong to.

Prime Loan Rates

As of February 2026, the prime rate is 6.75%, according to The Wall Street Journal (WSJ)’s Money Rates table, which aggregates prime rates charged throughout the U.S. and in other countries. The prime rate is typically three percentage points higher than the federal funds rate set by the Federal Reserve.

Each bank has the ability to set its own prime rate, but most base it on the national average listed under the WSJ prime rate.

Prime rates for consumer loans, however, aren’t the same as the prime rate for a bank’s top corporate customers. Since consumers generally do not have the same resources as large companies, banks typically charge individuals the prime rate plus a surcharge based on the product type they want and their qualifications as a borrower. For example, a credit card interest rate might be the prime rate plus 12%.

How Does the Prime Loan Rate Affect You?

The prime loan rate affects everyone. From buying a car to buying a house to opening a credit card, the benchmark prime loan rate influences how much interest you pay. You may be more vulnerable to prime loan rate fluctuations if you have a lot of variable interest loans, such as credit card debt. As the prime rate climbs, so too might the annual percentage rate (APR) of your cards. When you see a prime rate hike, it can mean that your APR will quickly rise as well.

When the prime rate falls, some people take the opportunity to refinance their mortgage or loan, such as a personal loan or an auto loan, to lock in a lower rate.

Because the prime rate affects credit cards, some people who carry a high credit card balance and have good credit may consider using a personal loan to consolidate their credit card debt. This is one popular use of personal loans and can potentially help you save money on interest, depending on the rate.

What Is the Difference Between a Prime Loan and a Subprime Loan?

Prime rates for consumer lending products are what lenders charge individual borrowers with good or better credit scores. Borrowers with lower credit scores are considered subprime borrowers and can apply for subprime lending with higher (or subprime) rates. Here’s a closer look at the differences between prime and subprime loans.

Interest Rates

Interest rates are one of the most obvious differences between a prime and a subprime loan. But even within the prime lending category, there may be subcategories that receive different interest rate offers. For example, a prime borrower with a credit score near super-prime territory may receive more favorable rates than a borrower whose credit is close to subprime.

Recommended: 8 Reasons Why Good Credit Is So Important

Repayment Periods

A subprime borrower may also have fewer options when it comes to repayment periods. They may have a longer repayment period at a higher interest rate than a prime borrower.

Down Payments

A prime borrower may have a low, or no, down payment requirement for a loan. But subprime borrowers may have to make a substantial down payment to qualify for a loan. This is especially true for loans like car loans or mortgages.

Loan Amounts

Prime borrowers may have access to greater loan amounts than subprime borrowers. For instance, prime applicants can often borrow $20,000 or more, whereas subprime applicants may max out at $6,000 or $8,000.

Fees

Non-prime borrowers may have to pay more in loan fees than a prime borrower. This may be due to the types of loans they can access. If they can’t get a loan from a traditional bank, a subprime borrower may seek Payday loans or other loans that come with sky-high interest rates and fees.

What Do You Need to Qualify for a Prime Loan?

You generally need a credit score of 660 or higher to qualify for a prime loan. If your score is 720 or above, you may qualify for a super-prime loan. That said, a lender will typically look at more than your credit score to determine whether you qualify for a prime or better loan. Other factors that can impact your loan rates and terms include your income, employment status, and how much debt you currently carry.

Recommended: Debt-to-Income Ratio (DTI): How to Calculate It

The Takeaway

The prime rate is out of your control. But you do have some control over the interest rate you’ll pay for a loan. One key factor is your credit score. If you’re not currently considered a prime borrower, building your credit before you apply for new credit can help you qualify for the most competitive loan options, whether you’re researching mortgages, credit cards, or personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What does “prime” mean in loans?

The term “prime” is used in consumer lending to refer to high-quality borrowers, loans, and rates. Prime loans generally have competitive interest rates and are offered to borrowers who have a low default risk and good or better credit scores. The opposite of prime is subprime, a term for riskier loans with a higher interest rate.

Is there a difference between prime loans and subprime loans?

Yes. Prime loans come with competitive interest rates and favorable terms and are generally offered to people whose credit scores are in the 660 to 719 range. (Borrowers with credit scores above that are considered super-prime borrowers and may be given even better rates and terms.) Borrowers with lower credit scores are considered subprime borrowers and may only be able to access loans with high interest rates and less favorable terms.

What is the current loan prime rate?

As of February 2026, the prime rate is 6.75%, according to WSJ’s Money Rates table. The majority of banks use the WSJ rate to determine their own prime rates.

Photo credit: iStock/Imagesrouges

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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When researching personal loans, you may see the terms annual percentage rate (APR) and interest rate used interchangeably. However, they are not the same thing. The interest rate refers to the cost of borrowing money, expressed as a percentage of the principal amount, but it doesn’t include any fees or charges.

APR, on the other hand, includes not only the interest rate but also other fees and charges you may incur when borrowing money. This makes the APR more important to look at than the interest rate.

Read on for a closer look at APR vs. interest rate and what it means when these two numbers are different and when they are the same.

What Is Interest?

Interest is the cost you pay for the privilege of taking out a loan — the money you’ll owe along with the principal, or the amount of money you’re borrowing.

Interest is expressed as a rate: a percentage that indicates what proportion of the principal you’ll pay on top of the principal itself. Interest may be simple — charged only against the principal balance — or compound — charged against both the principal balance and the accrued interest. Typically, personal loan rates are an expression of simple interest.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options.

Loan APR vs Interest Rate

So what’s the difference between an APR vs. an interest rate?

APR specifically designates how much you’ll spend, as a proportion of the principal, over the course of one year. It also includes any additional charges on top of interest, such as origination or processing fees, which a straight interest rate does not.

In other words, APR is a specific type of interest rate expression — one that’s more inclusive of additional costs.

Why Is My Personal Loan APR Different Than the Interest Rate?

If your personal loan’s APR differs from its interest rate, it means there are additional fees, such as origination fees, included in the total amount you’re being charged. If there were no fees, the APR and interest rate would be identical.

How Important Is APR vs Interest Rate?

When shopping around for loans, the APR is generally more important than the interest rate because the APR reflects the true cost of the loan — it accounts for interest as well as any fees tacked on by the lender. Looking at the APR also allows you to compare two loan offers apples to apples. One loan may have a lower interest rate than another loan, but if the lender tacks on high fees, then it may not actually be the better deal.

APR vs Interest Rate on Revolving Credit Accounts

Personal loans aren’t the only financial products that involve an APR and interest rate. Revolving credit accounts — including credit cards — also have interest rates expressed as APR. However, with credit cards, these two rates are the same: APR is just the interest rate, and the terms can be used interchangeably.

Credit card issuers may charge other fees, such as cash advance fees, late fees, or balance transfer fees, as applicable to individual usage. But it’s impossible to predict the type or amount of fees that might be charged to any one cardholder.

Although these two expressions are the same, it’s important to understand that the interest rate on credit cards and other revolving credit accounts is usually compound interest, which is why it can be so easy to spiral into credit card debt. When interest is charged on the interest you’ve already accrued, the total goes up quickly.

A single credit card account can have multiple APRs, depending on how the credit is used.

•   Purchase APR is applied to general purchases.

•   Cash advance APR is the rate charged for cash advances made to the cardholder.

•   Balance transfer APR may begin as a low or zero promotional rate, but it increases after the introductory period ends.

•   Penalty APR may be charged if a payment is late by a predetermined number of days.

💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

What Is a Good Interest Rate for a Personal Loan?

The interest rate on your personal loan — or on any financial product — will vary based on a wide variety of factors, including your personal financial history (such as your credit score and income), the lender you choose, how big the loan is, and whether or not it’s secured with collateral.

The average APR personal loan rate is currently about 12.00%. However, the rate you receive could be higher or lower, depending on your financial situation and the lender you choose.

Getting a Good APR on a Personal Loan

To get the best rate on your personal loan, there are some financial factors you can influence over time. Here are some action items to consider.

Building Your Credit Score

It’s been said before, but it’s true: The higher your credit score, the better your chances of achieving favorable loan terms and lower interest rates — not to mention qualifying for the loan at all. While there are loans out there for borrowers with bad credit and fair credit, building your credit profile can make borrowing money more affordable.

Paying Down Your Debts

One way you may be able to build your credit is to pay down your debts. Paying down debt can also improve your chances of being approved for a loan because lenders look at your debt-to-income ratio when determining your eligibility for a loan. What’s more, paying down debt can make keeping up with your monthly loan payments a lot easier, since you’ll have more leeway in your budget.

Being Careful When Applying for Credit

Applying for too much credit at once can be a red flag for lenders and reduce your credit score, so if you’re getting ready to apply for a personal loan, auto loan, or mortgage, try to limit how many times you’re having your credit score pulled. Typically, prequalifying for a loan involves a soft credit pull, which won’t impact your credit.

While credit scoring models do allow for rate shopping, it’s still a good idea to compare multiple lenders over a limited amount of time — 14 days is recommended — to find the lender that works best for your financial needs. If done in a short window of time, multiple hard credit pulls for the same type of loan will count as just one.

Recommended: Soft vs Hard Credit Inquiry

The Takeaway

Personal loans and other financial lending products come at a cost: interest. That’s the amount you’ll pay on top of repaying the principal balance itself. Interest is expressed in a percentage rate, most commonly APR, which includes both the interest and any other fees that can increase the cost of the loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Why is my personal loan APR different than the interest rate?

If the annual percentage rate (APR on your personal loan is different from the interest rate, it means the lender is charging additional fees, such as origination fees or others. No fees mean that the two rates will be the same.

How important is APR vs interest rate?

The annual percentage rate (APR is generally the more important figure to look at, since it includes additional costs incurred in getting the loan, such as fees. The APR will give you a more holistic picture of the price of the loan product.

What is a good APR and interest rate for a personal loan?

Personal loan interest rates vary widely but currently average around 12% APR. Depending on your personal financial history, the type and amount of the loan you’re borrowing, and your lender, the rate you receive could be higher or lower.

Photo credit: iStock/Charday Penn

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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