Life is pretty darn expensive sometimes, and borrowing money can help bridge certain financial gaps (hello, unexpected roof leak). When it comes time to apply for a personal loan, one major factor lenders take into consideration is an applicant’s credit score. Let’s look at some important factors that lenders look at when issuing personal loans and answer some top personal loan questions like, what credit score is needed for a personal loan?
What Personal Loans Are and How They Work
A personal loan enables consumers to borrow a specific amount of money to use however they would like, unlike a mortgage or auto loan which is earmarked for one specific purpose. Banks, credit unions, and other types of lending institutions offer personal loans.
Because personal loan uses can vary, borrowers can use those funds to finance things like home renovations, a wedding, medical expenses, or many other types of expenses they can’t afford to pay cash for or want to pay off over time. A personal loan can also be used to consolidate multiple sources of debt.
When it comes time to start paying off a personal loan, the borrower pays fixed-amount installments over a set period of time until they fully pay the loan off.
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What You Need to Qualify for Personal Loans
Like any lending product, applicants need to meet certain standards to qualify for a personal loan or at least to qualify for more favorable lending rates. These are a few factors lenders take into consideration when a potential borrower applies for a personal loan.
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Credit Score
Credit scores provide a quick snapshot of an applicant’s overall creditworthiness. There is no universally set minimum credit score for personal loans (although lenders may have their own unique minimum), but the higher a credit score is, the more creditworthy a borrower is considered and the more likely they are not only to be approved for a personal loan, but to qualify for better interest rates and loan amounts. While there are personal loan products on the market designed for applicants with bad credit, they don’t typically come with favorable interest rates or terms.
Credit History
One factor lenders look at when viewing an applicant’s credit report is how long they’ve been using credit. Credit scoring models like FICO® Score take how long a consumer has held credit accounts into consideration when determining their credit score, with longer histories being viewed more favorably.
Debt-to-Income Ratio
Understandably, lenders take how likely someone is to make their personal loan payments on time into account when determining whether or not to lend them money. Lenders look closely at debt-to-income (DTI) ratios which measure how much of their gross monthly income will go toward debt payments. If an applicant has a low ratio, that means they are more likely to manage their loan payments well because they don’t have too many other debts to manage comfortably.
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Cash Flow
To determine whether or not an applicant can comfortably afford their loan payments, lenders tend to look closely at their current income and their employment history to get an idea of what their cash flow looks like.
Personal Loan Options by Credit Score
When it comes to having the right credit score for a personal loan, there is no one set score that disqualifies someone from getting their hands on one. That being said, generally having a FICO Score in the good range (670-739) or higher gives applicants the widest range of lending opportunities and the most favorable interest rates. Take a closer look at how different FICO credit score ranges can affect lending opportunities.
| FICO Credit Score Range | Rating | Lending Opportunities |
|---|---|---|
| Exceptional | 800+ | Wide variety of lending products, favorable interest rates, larger loan amounts |
| Very Good | 740-799 | Wide variety of lending products, favorable interest rates, larger loan amounts |
| Good | 670-739 | Wide variety of lending products, good loan amounts, fair interest rates |
| Fair | 580-669 | Can qualify for some lending products with slightly higher interest rates |
| Poor | <580 | Limited lending opportunities, smaller loan amounts, typically high interest rates |
Exceptional
An exceptional credit score qualifies applicants for the widest variety of lending products, the most favorable interest rates, and larger loan amounts.
Very Good
Having a very good credit score qualifies applicants for most if not all of the same rates and lending opportunities as exceptional applicants.
Good
Having a good credit score puts a borrower near or slightly above the average of U.S. consumers, and most lenders consider this a good score to have. Applicants shouldn’t struggle to find a personal loan, but they may not be approved for the lowest interest rates.
Fair
Because a fair credit score is below the average score of U.S. consumers, many lenders will approve loans with this score, but rates and terms might not be as desirable as they are for higher scores.
Poor
A poor or “bad credit score” is well below the average score of U.S. consumers and demonstrates to lenders that the applicant may be a lending risk, which greatly limits the applicant’s borrowing options. If they do qualify for a personal loan they likely can expect to be approved at high-interest rates.
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Alternatives to Personal Loans
If someone’s credit score makes it difficult for them to qualify for a personal loan, they may find they need to pursue alternative lending options. Two of these options are:
• Credit card cash advance. Consumers with credit cards may be able to request a cash advance from their credit card, which can make it easy to get access to cash quickly. These cash advances typically come with higher interest rates than a regular credit card purchase.
• Peer-to-peer loans. There are some web-based lending sites that offer some flexibility in qualification requirements. Since these sites are not lenders, just matchmakers of sorts, they may be able to find an investor willing to lend to someone who is looking for a personal loan without credit needed to qualify for a traditional loan.
• Cross-collateral loans. Someone who already has a loan secured by collateral may be able to qualify for another loan using that same collateral. Not all lenders engage in these types of loans and there are risks involved in this approach. To have a lien released from the asset used as collateral, the borrower must pay both loans — not just one — in full.
Personal Loan Rates From SoFi
Those considering taking out a personal loan may find that SoFi can meet their borrowing needs. SoFi Personal Loans come with low rates and no fees required, so borrowing can be as simple and affordable as possible.
FAQ
Is a different credit score required for loans of different sizes?
Generally, the higher someone’s credit score is, the larger loan amounts they’ll likely qualify for. Larger loans can also come with longer repayment terms which can make monthly payments more affordable.
Can you get a personal loan without having a credit score at all?
There is no specific credit score needed for personal loans. A consumer may be able to qualify for a personal loan if they don’t have a credit score by applying for a no-credit-check loan. There are some loan products on the market that don’t take credit scores into account.
Can getting a personal loan affect a credit score?
Getting a personal loan can affect credit scores positively and negatively. Applying for a personal loan can result in a hard inquiry to the applicant’s credit report, which may temporarily lower their credit score and increase their DTI. On the flip side, increasing their credit mix by taking out a personal loan, making on-time payments, and building a strong payment history can help improve a person’s 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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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 .
Photo credit: iStock/Moyo Studio
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