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A personal loan is a useful financial tool when you need to borrow money to cover almost any expense, such as car repairs, home renovations or medical bills. When you apply for a personal loan, you must meet the lender’s credit requirements. Having good to excellent credit will usually get you the lowest interest rates, but some lenders specialize in bad credit personal loans.
Learn more about the credit score you need to qualify for a Personal loan, why your credit score matters and what to consider when comparing personal lenders.
Credible, it’s easy to view your prequalified personal loan rates from various lenders who offer loans for a wide range of credit scores.
What credit rating do you need to qualify for a personal loan?
Each lender has their own credit score requirements for a personal loan. For this reason, it is probably possible to find a personal lender who will give you a loan, regardless of your credit rating.
But you usually need at least a good credit score to get a personal loan with a decent interest rate and loan terms. The higher your credit score, the better your interest rate will be and the more loan options you will have available.
Most lenders use the FICO credit scoring model to determine if they should approve you for a loan. Here’s how FICO breaks down credit score ranges:
Why is your credit score important when applying for a personal loan?
Credit scores are three-digit numbers that represent your credit history, which are recorded on your credit reports from each of the three major credit bureaus – Equifax, Experian and TransUnion. The higher your credit score, the more likely a lender is to lend you money. Because having a higher credit rating makes you more likely to repay your loan in the eyes of the lender, they tend to offer the best interest rates and loan terms to borrowers with good credit ratings.
If you have a low credit score, you will need to do a little more work to find a lender who will offer you a personal loan. Some lenders will approve you for a loan even if you have a bad credit score or lack of credit history. But you’ll likely pay a higher interest rate for a loan than someone with good or excellent credit.
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Factors that affect your credit score
The following factors interact to determine your credit score:
- Payment history – It’s the most important factor in determining your credit score, accounting for 35% of your score. When you pay your credit card and bills on time each month, you improve your credit score. If you make late payments or miss payments so much that you can’t repay a loan, it can hurt your credit score.
- Credit utilization rate — Your credit utilization rate represents the amount of available credit you are using and represents 30% of your FICO score. The lower your credit utilization ratio, the more your score will benefit. Ideally, you want to keep this ratio below 30%.
- Length of credit history — If you can establish a credit history from a young age, you’re on the right track. The longer your credit history, the more likely your credit score will benefit. Keeping an old credit account open, even if you don’t use it often, can help you maintain a longer credit history.
- Composition of credit — Having a diverse combination of credit products in your name, such as a student loan, credit card, and car loan, can help show lenders that you’re capable of handling and repaying multiple types of debt at once.
- New credit — Applying for or opening too many new credit accounts in a short time can scare off lenders, as it indicates that you may need to borrow money to get by. If you are considering applying for a personal loan, try to avoid applying for new forms of credit in the months leading up to your loan application.
You can compare personal loan rates on the Credible platform, and it will not affect your credit score.
Can you get a personal loan if you have bad credit?
Yes, you can get a personal loan if you have bad credit. Some lenders even specialize in bad loans.
Consider a peer-to-peer lender who accepts a lower credit score and instead focuses on work and educational history when deciding whether to lend you money. If you belong to a credit union, it may have looser borrowing criteria than some major banks or financial institutions.
If you’re having trouble getting approved for a personal loan on your own, you can apply with a co-signer who has good or excellent credit. Adding a co-signer to your loan application can make it easier to qualify for a personal loan and help you get a lower interest rate.
How a personal loan can affect your credit score
Taking out a personal loan can affect your credit score in different ways :
- Improves your credit mix — Taking out a personal loan can help you improve your credit mix.
- Creates a payment history — As long as you repay your personal loan on time, you will strive to establish a positive payment history.
- Create a challenging investigation — When you apply for a personal loan, the lender will check your credit with a firm credit check. This can negatively affect your credit score, but it will usually rebound after a few months.
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What about loans without credit check?
Loans without credit check are a type of loan designed for those with bad credit or without an established credit history. Since these loans do not require a credit check, lenders compensate for the risk they take by charging high interest rates or additional fees. Loans without a credit check may be easier to obtain than traditional personal loans, but this ease of eligibility comes at a high cost.
Payday loans and title loans are two types of loans that do not require good credit ratings. These small, short-term loans come with fees that can amount to very high annual percentage rates (APRs) of almost 400%, according to the Consumer Financial Protection Bureau. These loans can trap you in a cycle of debt and should only be considered as a last resort.
What should you consider before choosing a personal lender?
Regardless of your credit score, you’ll want to consider the following factors when comparing different loan options:
- Interest rate – The higher the interest rate, the more you will pay over the life of the loan. See which lender can offer you the lowest interest rate.
- Repayment period – The length of a repayment term can affect the amount of your monthly payment. Although shorter repayment terms can help you save on interest, they usually come with higher monthly payments. Make sure the lender you choose can offer repayment terms that fit your budget.
- Amount of the loan – It’s important to borrow only what you need so you don’t pay interest on unnecessary funds. Find a lender who will lend you the full amount you need.
- Costs – All lenders charge fees differently. Ask each lender you’re considering what fees you’ll have to pay, such as origination fees for processing the loan or prepayment penalties for repaying the loan earlier than expected.
- Co-signer option — Not all lenders allow co-signers on personal loans. If you want to apply for a co-signer to improve your chances of qualifying and help you get a better interest rate, you’ll need to find a personal lender that allows co-signers.
How to apply for a personal loan
Different lenders have different application processes, but when you apply for a personal loan, you can generally expect to go through the following steps:
- Compare lenders. Before you apply for a personal loan, get prequalified with different lenders and compare each to see which one can offer you the best personal loan for your needs.
- Choose a loan option. Once you find a lender, you can choose which of their loan products you want to apply for.
- Complete the application. When applying for a personal loan, you will need to provide personal and financial information, such as documents proving your identity, employment status, and income.
- Get your funds. If you are approved for a loan, the lender will disburse the funds, usually by direct deposit to your bank account.
- Start making payments. Once you receive your loan funds, you will begin making your regular payments (usually monthly) until you repay the loan in full according to your repayment term.
If you’re ready to apply for a personal loan, visit Credible for quick and easy compare personal loan rates from various lenders in minutes.