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Personal loans are popular for those in need of extra cash because you can get them relatively quickly, and the funds can be used for many different purposes.
However, there are some hard requirements when applying for a personal loan. Chief among them: your credit score. We’ll explain why the exact number you need varies by lender, your options if you have bad credit and what the other personal loan requirements are.
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Minimum Credit Score for a Personal Loan
The minimum credit score you need for a personal loan will vary by lender. The reason is that lenders are free to set their own limits based on their risk tolerance and analysis. In the eyes of the lender, the lower your credit score is, the riskier you are to loan money too.
While you may find an outlier, generally, you’ll need a credit score in the mid-600s or higher to qualify for an unsecured personal loan. An unsecured loan means that you won’t have to put down any collateral to qualify for the loan.
Personal Loan Options for Fair or Bad Credit
It’s still possible to get a personal loan with bad credit. But the steps you’ll need to take will depend on the lender you use and just how “bad” your credit score actually is.
Here are the credit score ranges for FICO:
|579 or lower
|580 – 669
|670 – 739
|740 – 799
|800 or higher
If your score is in the “good” range or higher, you shouldn’t have much trouble finding a lender willing to issue you a loan. Remember, the better your score, the better loan terms you’ll likely qualify for.
If your score is in the “fair” range, depending on where you fall, you still may find reputable lenders willing to issue you a loan. The mid-600s falls in the fair range and is the cutoff threshold for many lenders.
If your credit score is in the poor range, it’s still worth talking to your lender to see what your options are. Here are some steps you might be able to take to get a personal loan:
- Opt for a secured loan: Applying for a secured personal loan requires putting down an asset as collateral to qualify for the loan. If you fail to make your payments, the lender will receive the rights to the asset.
- Apply for a lower loan amount: The amount you’re applying for matters when it comes to the minimum credit score requirements. You may be able to qualify for a personal loan by reducing how much you’re asking for.
- Find a co-signer: Some lenders will allow you to get a co-signer for a personal loan. Make sure to choose someone you trust, who understands the responsibility they’re taking on and whose financial situation will improve your application.
- Improve your credit score: If you can afford to wait, it’s possible to take steps to improve your credit score. This can allow you to qualify for a personal loan outright. (More on the steps you can take later.)
Can you get a personal loan with no credit history?
Yes, it is possible to get smaller personal loans with no credit history. Personal loans usually range from about $2,000 to $45,000 in value. The exact amount you can borrow with no credit will depend on the lender you choose and your debt-to-income (DTI) ratio.
If you want a loan with a value towards the higher end of the spectrum, you may need to find a co-signer or consider applying for a secured loan.
Additional Personal Loan Requirements
Your credit score isn’t the only thing your lender will review when deciding whether or not to approve a personal loan. Here are the other factors they will review.
Your debt-to-income (DTI) ratio factors in your outstanding monthly debts as they compare to how much income you bring in. This is an important metric for your lender in the application process because the lower your DTI ratio is, the more likely you are to be able to pay the loan back.
Lenders like to see proof of stable employment because that translates into stable paychecks, increasing the odds you’ll be able to pay back the loan. It’s possible to get a personal loan if you’re self-employed, but there will need to be more supporting documentation verifying your income.
Any reputable lender will need to review official documentation before issuing you a personal loan. It would be irresponsible of them just to lend money out without verifying the information applicants provided was true. Documentation will likely include things like your bank statements, tax returns, pay stubs and proof of identity.
Tips For Improving Your Credit Score
Even if you’re able to qualify for a personal loan with a lower credit score, you’ll likely be charged a higher interest rate. This can cost you thousands of dollars over the life of the loan. If you can afford to wait, your best course of action might be to improve your credit score and reapply for a loan later with the goal of securing better terms.
If you can’t qualify for a loan with your current score, improving your score could unlock qualification down the road.
It’s good general practice to review your credit report to understand what’s in it. Additionally, this also gives you the opportunity to catch and dispute mistakes so that your score isn’t unfairly dinged by an error.
Lowering your credit utilization percentage can increase your credit score. It shows lenders that you’re responsible with your credit, even though you have the ability to charge more.
Your payment history is one of the most important aspects of your credit score. Regardless of what that history looks like, making on-time and in-full payments on your current debts can improve your score over time.
Final Thoughts on Credit Scores for Personal Loans
Regardless of what your credit score is, it’s worth taking the time to talk to your preferred lender and understand your options. Even if you don’t qualify for an unsecured loan right away, there might be immediate steps you can take, like applying for a lower amount or looking for a co-signer.
Just remember, playing the long game and working on your credit score can save you big money in the long run. Take the time to get your financial ducks in a row to help you qualify for better loan terms.
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Checking your options won’t affect your credit score.
The Short Version
- Generally, you’ll need a credit score in the mid-600s or higher to qualify for a personal loan, but the exact number will vary by lender
- If you have bad credit, you may still be able to qualify for a personal loan by applying for a secured personal loan or applying for a lower loan amount
- Other personal loan requirements include your debt-to-income (DTI) ratio as well as your employment history
My Fico. “What Is a Credit Score?” Retrieved January 2024 from https://www.myfico.com/credit-education/credit-scores