What Credit Score Do You Need for a Personal Loan? Many lenders prefer borrowers with good or excellent credit scores (690 and above), but some are willing to work with borrowers with bad credit (below 630). Your credit score is one of the most important things lenders look at when considering you for a loan.
What credit score do you need for a personal loan? And how can you improve your credit score if it’s different from where you want it to be? Keep reading to find out more.
What credit scores do I need to get a personal loan?
The minimum credit score you need for a personal loan varies by lender. Some lenders don’t publicly disclose their credit requirements, so you may not know what score you need to qualify until you go through the pre-qualification process.
In some cases, you can find information about the credit scores of approved applicants in lender filings with the U.S. Securities and Exchange Commission. However, this information may be challenging to find or understand. As a result, it’s important to compare offers from multiple lenders to see which one is the best fit for you.
What factors affect my credit scores?
Credit scores are designed to give lenders a quick way to assess your creditworthiness
Here are a few important factors that go into determining your credit score:
Your credit report is a record of your financial history, one of the most important factors lenders consider when determining whether or not to give you a loan.
Payment history makes up 35% of your score, so it is important to ensure that you always pay your bills on time. If you miss a payment, make the next one as soon as possible to minimize the damage to your score. You can stay on due dates by signing up for autopay or setting calendar reminders.
Maintaining a good payment history can improve your chances of getting approved for loans and lines of credit.
When you use credit, whether a credit card, a loan, or any other type of borrowing, you use up a portion of the total credit available to you. This is your credit utilization.
Experts recommend using only 30% of your available credit. The lower your credit utilization, the better your credit score will be. You can improve your credit utilization by paying off your balances and increasing your credit limits.
Length of Credit History
One factor that affects your credit score is your length of credit history. This is based on the time you’ve had credit accounts open in your name.
A longer credit history typically indicates to lenders that you’re a responsible borrower, which can help you qualify for loans and get lower interest rates.
Mix of Credit Types
The mix of your credit refers to the different types of accounts you have, including credit cards and installment loans.
It’s important to remember that your credit mix doesn’t directly impact your credit scores, but it is one of the factors that lenders look at when considering a loan. A strong credit mix shows that you have experience handling different accounts and debt types, which can make you a more attractive borrower.
Recent Credit Inquiries
When you apply for a new line of credit, creditors often review your credit reports and scores. If they do, this will be recorded as a credit inquiry. Credit inquiries can stay on your reports for up to two years.
While some credit inquiries are usual, too many can be a red flag for creditors. If you’re planning on applying for new credit shortly, it’s important to check your reports and ensure there aren’t any unexpected inquiries. Doing so could help you avoid being denied new credit.
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The Bottom Line
Credit scores are important because they show lenders how likely you are to repay a loan. A high credit score means you’re a low-risk borrower, which could lead to a lower interest rate on your loan.
If you have bad credit, there are still options available to you. Some lenders are willing to work with borrowers with bad credit, although they may charge a higher interest rate. You can also improve your credit score before applying for a personal loan.
My USA Finance can help you take control of your finances and improve your credit score so you can get the best possible terms on a personal loan.