What to consider — along with credit score — when seeking a personal loan

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Credit score for personal loan

From busted boilers to starting your own business, many life events require a little capital to help you along. And if you find yourself in need of cash, a personal loan may seem tempting. 

But you can’t just walk into any bank and expect to automatically qualify for a loan. Instead, you’ll have to apply and then usually submit to a credit check. And before you apply, you should know the lender’s requirements regarding the minimum credit score for a personal loan. 

Where can I get a personal loan?

You can’t answer the question, “What credit score do I need to get a loan?” without taking the lender into account. After all, different lenders have different required credit scores for a personal loan. To that end, below are some types of personal loan lenders.  

Online lenders

You can easily check out offers from several lenders. Many online institutions let you prequalify, in which the lender uses a soft credit check to estimate your loan amount, rate, and term. 

Traditional banks

If you have a good relationship with your banker and are financially qualified, you might be offered perks like high loan amounts and low APRs. However, not all banks provide personal loans, and the minimum credit score for a personal loan may vary greatly between institutions. 

Credit unions

Credit unions usually require you to become a member before you apply, but credit unions may offer a lower interest rate than a bank.

Credit cards

While not a personal loan, taking out a credit card gives you access to a revolving credit line. As you repay your outstanding balance, you regain access to the full credit line again. Credit cards can be useful in emergencies or to build your credit score, although the companies that issue credit cards may charge higher rates than you would pay for a personal loan. Many also have low credit score requirements. But the best APRs generally go to borrowers who have a good or excellent FICO score

Will a personal loan help build credit?

Taking on personal loans and credit cards can both help you build your credit score over time if used responsibly. That’s because paying your monthly loan installments on time — your credit history — makes up 35% of your credit score. Of course, that won’t guarantee that your credit score will increase. For instance, if your starting credit score is high, adding a few on-time payments won’t have a huge impact. But if your score is low, you may see a bigger rise over time. Late payments only start impacting your score once it has been overdue for more than 30 days. It is important to check if any medical bills, credit card balances, or other accounts are overdue since it does have such a large impact on your score. Additionally, negative items such as foreclosures or bankruptcies do have an impact on your credit score. These items unfortunately do last for several years, usually around seven, on your credit report. 

Does it matter what I use my personal loan for?

A personal loan is a term that implies that you can use the money for any personal or household purpose. Common reasons to take out a loan include the following:

  • Covering emergencies like medical bills
  • Debt consolidation
  • Home improvements or repairs
  • Major life occurrences like funerals, weddings, or having children

When do I need to repay my loan?

When you take out a personal loan, your lender will outline your repayment term, APR, and other details in your lending contract. But every situation is different, and your term may vary based on your lender, loan size, and purpose for borrowing. 

Get better interest rates with better credit

A borrower with a good credit score and healthy credit history typically will receive a wider variety of personal loan offers with better interest rates, because lenders will see these borrowers as having lower credit risk and are more likely to lend to them. Therefore, improving your credit history and credit score could get you access to better credit.

Get cash and use it to improve your credit score

With a Credit Builder Plus membership, you can get access to apply for a 12-month credit builder loan of up to $1,000. When you make on-time payments, you can take steps to help you improve your credit score. 

With the credit builder loan, you won’t get the full amount right away. We will give you a portion of your loan funds upfront and save the rest for you in a Credit Reserve Account in your name while you pay off your loan. When you pay off your full loan amount, you will be able to withdraw the money saved in the Credit Reserve Account*. The best part: It’s proven to build credit! More than half of our members raise their scores by 42+ points within 60 days.1

With a Credit Builder Plus membership, you can also:

  • Monitor your credit on a weekly refresh basis
  • Gain access to up to $300 in 0% APR Instacash cash advances per pay period

Get your Lion’s Share of cash back — up to $19.99 every month

FAQ

What credit score is needed for a personal loan?

Different lenders impose their own requirements regarding credit scores for personal loans. Lenders who work with people with bad credit may approve a loan with scores as low as the mid-500s, while borrowers with scores around 690 or higher usually see better rates.

What kind of loan can you get with a 700 credit score?

According to the FICO model, a 700 credit score is in the “good” range. As such, you can typically qualify for most types of loans at a lower interest rate than poor-credit borrowers.

Can I get a personal loan with bad credit?

It’s possible to get a personal loan with bad credit, though you may pay higher interest rates.

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