When you’re facing a financial emergency or unexpected expense—like an urgent auto repair or hospital bill—a personal loan can be a lifesaver. If you need funds fast, you might be wondering, “Is there a certain credit score needed for personal loans? Given my credit score, will I qualify for a personal loan?” We’ll cover all the details here, starting with a quick review of how credit scores work and why they matter.
Credit scores 101
Any time you apply for a new loan—whether it’s a personal loan, credit card or mortgage—the lender will gather information about you to decide if they want to lend you money, how much, and at what interest rate.
To accomplish this, lenders will often access your credit report. Your credit report is a statement of information about your credit history and current credit situation. It contains details about current and past loans, including the amount you borrowed and your payment history.
Credit scores are three-digit numbers based on your credit report. There are multiple companies that calculate credit scores, including FICO and TransUnion. Each score is based on a different model, so your scores might vary across providers.
Tip: Loans that don’t involve a credit check—like most payday loans and auto title loans—fall into a different category. Learn more about the pros and cons of these loans here.
Why credit scores matter
Borrowers who have solid credit reports and high credit scores are viewed by lenders as being less risky—meaning they’re seen as less likely to fall behind on payments or stop paying altogether. In fact, just 1% of consumers with a FICO score of 800 or above are likely to become seriously delinquent in the future. As such, lenders generally offer these borrowers loans with lower interest rates and/or larger amounts.
On the other hand, borrowers with shakier credit reports and lower credit scores are typically offered loans with higher interest rates and/or lower amounts due to the increased perceived risk. About 60% of consumers with a FICO core of 579 or less are likely to become seriously delinquent in the future.
Checking your credit report and credit score
It’s smart to regularly check your credit report for any errors or inaccuracies. That way, when the time comes to apply for new credit, a mistake won’t keep you from getting the best possible loan terms. You’re entitled to a free copy of your credit report every 12 months from each of the three major credit bureaus: Equifax, Experian and TransUnion. If you find an error, you can dispute it by phone, written letter or online.
What about your credit score? There are several online tools that enable you to check your score for free. Keep in mind the score you see may not be the exact score your borrower sees, due to differences in timing and variations in models across score providers.
Credit score needed for personal loan: Key considerations
To qualify for a personal loan, most lenders require that you have a minimum credit score, often somewhere between 580 and 600.
Tip: If you’re not sure about the minimum credit score requirement for a particular lender, ask before applying. Every time you apply for new credit, a hard inquiry is generated which can have a negative impact on your credit score. Don’t waste an application on a loan you won’t qualify for.
For scores above the minimum, lenders typically adjust their offers according to score ranges, reserving their very best terms for borrowers with excellent credit.
For example, let’s say a lender doesn’t offer loans to borrowers with FICO scores under 600. For scores between 600 and 620, the lender offers a median interest rate of 38% for a $5,000 loan; for scores between 620 and 650, the media interest rate for a $5,000 loan drops to 36%, and so on. As you can see, a difference of just 20 points can vault you into a better category, saving you hundreds of dollars in interest over the life of your loan.
While each lender will have unique qualification criteria, it’s always helpful to know your credit score before starting the application process and to continually monitor your credit profile.
With RISE, you borrow what you need, when you need it. Apply for an online installment loan with RISE today.