What credit score do you need for a personal loan?

A personal loan may be a helpful tool whether you’re looking to consolidate debt or cover relocation costs for a new job. But before you can access the funds for those financial goals, you’ll need to make sure you qualify for the loan. One factor that many banks, credit unions and lenders typically consider when you apply for a personal loan is your credit score. While your credit score is not the only factor in the lender’s decision-making process, it helps determine your creditworthiness.

Your credit score gives lenders an idea of how likely you are to repay the loan on time. While a higher credit core usually gives you a better shot at approval, there’s no single minimum credit score you need to get a personal loan, and requirements vary depending on the lender. For example, here at OneMain we work with a wide range of credit scores and take your whole financial picture into account to find a loan that’s right for you.

A high credit score may expand your options and help you get a lower interest rate, but that doesn’t mean a lower score disqualifies you from all personal loans. If you’re considering a personal loan, read on to better understand how your credit score might affect your options.

How do credit scores work?

Your credit score is a three-digit number that acts like a snapshot of your credit at a specific time. As you use credit cards or manage loans, lenders share your activity with the three major credit bureaus: Experian, TransUnion and Equifax. Sometimes those bureaus, also called credit reporting agencies, use that information, which includes your active credit accounts, their current balances and your payment history, to create your credit report and a three-digit credit score. Several credit scoring models exist, but many lenders use VantageScore® and the Fair Isaac Corporation (FICO®) score.

Factors that determine your credit score

Some lenders, like OneMain Financial, use the VantageScore® model, which was designed to give more people access to credit scores.¹ Here are the factors that go into calculating VantageScore® and FICO® scores:

VantageScore®²

• Payment history (41%): A record of your on-time, late and missed payments. Missed or late payments could hurt your score.
• Depth of credit (20%): The length of your credit history and the mix of credit types you have.
• Credit utilization (20%): How much debt do you currently have compared to your available credit or the sum of your credit limits. Lenders usually prefer a lower ratio.
• Recent credit behavior (11%): Recent credit inquiries and new account openings.
• Balances (6%): The total debt you owe across all accounts.
• Available credit (2%): The total credit limit available across all your credit accounts.

FICO®³

• Payment history (35%)
• Amount owed (30%): How much total debt you currently have.
• The length of your credit history (15%): A longer credit history shows lenders that you have experience managing debt.
• Credit mix (10%): The variety of credit accounts you have. It’s better to show experience having different credit accounts, like mortgage, credit cards and personal loans.
• New credit (10%): The number of credit accounts you’ve recently applied for. Applying for multiple accounts in a short timeframe may frame you as a riskier borrower.

If you’re a current OneMain customer, you can easily access your free monthly VantageScore® credit score by logging in to your online account or using our mobile app. From there, you can also get monthly updates and track your score over time to see how it’s trending.

Credit score ranges

Credit scores are grouped into ranges, which make it easier to understand your credit score. Knowing your credit score range can also help you anticipate how lenders may respond to your personal loan application.

VantageScore® ranges are as follows:⁴

• 300 to 600 – Subprime (People with scores in this range may have a tough time qualifying for most personal loans)
• 601 to 660 – Near prime
• 661 to 780 – Prime
• 781 to 850 – Superprime (People with scores in this range may have a more favorable credit history and access to the most personal loan options)

FICO® ranges are similar, but the terminology is slightly different:⁵

• 580 or lower – Poor
• 580 to 669 – Fair
• 670 to 736 – Good
• 740 to 799 – Very good
• 800 or higher – Exceptional

Remember, your credit score just captures your creditworthiness at a particular moment. A credit score in the “poor” or “subprime” range doesn’t represent your character; it just means you may want to change how you manage your finances. A few changes may bump your credit score into a different range, but it can take time for new behaviors to be reflected in your credit score.

How do credit scores impact personal loan approval?

Lenders use your credit score to estimate how risky it may be to offer you a loan. Borrowers with scores in the “prime” or “superprime” ranges may have the most loan options. From a lender’s perspective, they are most likely to repay their loans on time. Higher scores indicate a lower risk.

People with scores in the “subprime” or “near prime” range may have fewer and/or different loan choices available to them. Some lenders charge higher interest rates for people with “subprime” or “near prime” scores. Borrowers with lower credit scores may have difficulty accessing higher loan amounts. But they may have more borrowing power with a secured loan — a loan that uses collateral, which is something of value such as a car, to back the loan. However, your credit score isn’t the only factor that affects your personal loan eligibility.

Other factors that influence your approval odds

While your credit score represents your credit history, potential lenders also want to make sure you have the resources to manage debt.

• Debt-to-income ratio: Lenders may assess your debt-to-income ratio (DTI) when they review your loan application. Your DTI compares your monthly payments across all your outstanding debts to your monthly income. A lower DTI is better when you’re applying for a personal loan.
• Employment history and income: Lenders may review your income and employment history to ensure you have the funds to repay the loan.
• Loan amount and purpose: The purpose and amount of the loan you want could also impact the lender’s decision. If the lender believes the loan amount is too high compared to your income, they may either deny your application, suggest a smaller loan amount or recommend you put up collateral to qualify for a secured loan for a higher amount. If you fail to repay the loan, a lender may take possession of the collateral.
• Collateral: If you apply for a secured personal loan, the lender will require you to offer up something valuable, like a car or truck, called collateral, to secure the loan. If you cannot make your payments, the lender can take ownership of your collateral to make up for the money they lost.

Can you get a personal loan with a less-than-perfect credit score?

If you need money quickly, but your credit score isn’t as high as you’d like it to be, there are still some ways you could qualify for a personal loan. However, you should be wary of high-risk loans, like payday or title loans.While these options may not require a credit check, they have high interest rates and short terms that could leave you struggling to get out of debt.

Another alternative would be to apply for a personal loan with a cosigner who has a more favorable credit history, but they’ll be equally responsible for the loan if you don’t pay it back. Or you could apply for a secured personal loan, which may offer a lower interest rate, longer term and higher borrowing amount than a payday or title loan.

How to improve your credit score

Remember, having a lower credit score doesn’t have to be permanent. Changes in your financial habits could increase your score over time. If you want to improve your credit score, the following steps could help:

• Pay down your debts: You could possibly increase your credit score by paying down some of your debts like credit cards, lines of credit or other loans. It also helps to pay more than the minimum each month if you can.
• Check your credit report for errors: You can check your credit report for issues — falsely reported missed or late payments, for example — to correct problems quickly and possibly boost your score.
• Make on-time payments: Late or missed payments typically hurt your credit score and result in late fees. If you have a habit of paying a few days late, try signing up for autopay or setting reminders for yourself so you never miss a payment.

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Don’t let your credit score limit your money goals

From emergency home repairs to wedding expenses, there are plenty of reasons to apply for a personal loan.No matter what your credit score is, understanding how the credit score impacts your approval odds, and the terms of a loan offer could help you make smart money choices. Even if your score is lower than you’d like, you may still be able to access the funds you need. At OneMain, we look beyond your credit score to help you find the right personal loan for your budget.

Sources:

1. https://vantagescore.com/about/about-vantagescore/
2. https://www.nerdwallet.com/article/finance/vantagescore-4-0
3. https://www.myfico.com/credit-education/whats-in-your-credit-score
4. https://vantagescore.com/resources/knowledge-center/the-complete-guide-to-your-vantagescore/
5. https://www.experian.com/blogs/ask-experian/infographic-what-are-the-different-scoring-ranges/