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What Is The Required Credit Score For Personal Loans?

Though it ultimately depends on the lender, there are minimum credit score requirements to be aware of when applying for a personal loan.

Chris Scott

Contributing Writer at Tally

April 12, 2022

Personal loans can be an attractive option for borrowers. They can be used to cover medical bills, home improvements and other unforeseen expenses. Borrowers can also use them as a debt consolidation tool. Personal loans can be particularly appealing if their interest rates are lower than those on other types of debt you carry, like credit cards.

If you’re considering applying for a personal loan, it’s worth taking some time to understand how the process works. 

Keep reading to learn a few of the important things to know about loan applications — like how to apply, who to apply with, the best credit score for personal loans and your odds of approval.

What are personal loans?

A personal loan is money that you borrow from a lender. The lender will offer a lump sum upfront. You are then required to repay the lump sum, known as the principal, over an agreed-upon period of time. In addition to the principal, your lender will also charge you interest. Interest is the cost of borrowing money.

From there, you’ll repay the loan in a series of monthly payments. Your monthly payment includes both principal and interest.

There are two types of personal loans: 

  1. Secured personal loans. If you have bad credit, you’re more likely to be approved for a secured personal loan than an unsecured one. That’s because a secured loan requires you to put up collateral as backing. Home equity would be an example of this. If repayment doesn’t occur on time, the lender can seize your collateral.

  2. Unsecured personal loans.Unsecured personal loans don’t have these stipulations. If you make late payments, your lender will likely charge late fees and possibly penalty interest rates. But you won’t have to worry about losing collateral or access to your loan.

There are two things that make personal loans particularly appealing:

  1. They’re flexible in use. For instance, a mortgage is specifically dedicated to the purchase of a home. Though it depends on the lender, many personal loans do not have significant stipulations regarding their use. You receive the entire loan amount upfront and can subsequently use those funds as you desire.

  2. They typically have lower interest rates than other forms of lending. For instance, the interest rates for personal loans are often lower than those of credit cards.


Who offers personal loans?

Many different types of lenders offer personal loans. Generally speaking, you can apply for a personal loan with a bank, credit union or online lender.

The terms and conditions associated with the loan can vary from one lender to another. You may see differences in things such as:

  • Loan amounts

  • Interest rates

  • Loan term

  • Application requirements (such as a minimum credit score requirement)

When you apply for a personal loan, the financial institution with which you’re applying will perform a credit check. To do so, they will need to pull a hard inquiry on your credit report.

Hard inquiries are documented on your credit report and can possibly lower your credit score. Because of this, it’s wise to avoid applying for several loans at once. Be targeted in your research and only apply for those loan options in which you think you have a good chance of being approved.

Some lenders will allow you to input your financial information and run a soft inquiry, which is different from a hard inquiry. This will give you an idea of whether you’ll be approved for the loan or not. If you pass this soft inquiry, your lender may consider you “prequalified,” essentially indicating you’d receive loan approval.

You will still need to submit a formal application, and the lender will still need to run a hard inquiry, but taking this step increases the likelihood that you only apply for the loans with the greatest chances of approval.

How can you apply for personal loans?

Each lender has its own application process. You can either apply through the financial institution’s website or visit one of their branches in person to submit a personal loan application. 

You’ll generally need to provide the following when applying:

  • Legal name

  • Address

  • Date of birth

  • Social Security number

  • Identification, such as a passport or driver’s license

  • Proof of income, such as a W-2, bank statement or pay stub

  • Proof of address, such as a lease or utility bill

  • Bank account information (such as account and routing numbers) for verification

Your lender will take this information and use it to run a credit check.

What is the necessary credit score for personal loans?

The required credit score for personal loans will vary depending on the lender. Having said that, the minimum credit score requirements for personal loans typically range between 540 and 620.

There are two different types of credit scores: FICO Scores and VantageScores. FICO breaks down its credit score ranges in the following manner: 

  • Exceptional credit score: 800 to 850

  • Very good credit score: 740 to 799

  • Good credit score: 670 to 739

  • Fair credit score: 580 to 669

  • Poor credit score: 300 to 579

VantageScore breaks down its credit score ranges in the following manner: 

  • Excellent credit score: 750 to 850 

  • Good credit score: 700 to 749 

  • Fair credit score: 650 to 699

  • Poor credit score: 550 to 649

  • Very poor credit score: 300 to 549 

Your credit score will not only determine the likelihood of approval, but it will also influence things like your interest rate. For instance, if you have a low credit score, you may be approved, but your loan offer will likely contain a higher interest rate. The lowest rates and ideal loan terms are reserved for those with higher credit scores.

It’s also worth mentioning that your lender may calculate your debt-to-income ratio. This is a measure of how much debt you have compared to how much money you make. Lenders usually want to see your debt-to-income ratio at 40% or less when applying for a personal loan.

As an example, let’s say you earn $4,500 per month. You have a $1,500 monthly payment on your mortgage, a $400 monthly student loan payment and a $100 payment for an existing credit card balance, so your total monthly debt payments are $2,000. 

To calculate your debt-to-income ratio, you would divide $2,000 by $4,500 to get 44.44%. Eligibility requirements depend on the loan lender, but this figure may be too high for approval, as it’s over the 40% figure that lenders like to see.

What are your odds of being approved?

Your odds of approval will depend on your credit score and metrics like your debt-to-income ratio. The higher your score, the more likely you are to be approved for a personal loan. Similarly, the lower your debt-to-income ratio, the more likely you are to be approved.

If you happen to have an excellent credit score and a low debt-to-income ratio, you may not only be approved, but you may receive the optimal rates from your lender. On the other hand, if you have a poor credit score and a high debt-to-income ratio, you may receive a loan offer with high interest rates attached.

Additionally, the type of loan you’re applying for can influence your odds of approval. If you have fair credit, you may be more likely to be approved for a secured personal loan than an unsecured one. Having said that, there are some things you can do to improve your credit score if necessary.

How can you improve your credit score?

If you find that you do not have the right credit score for personal loans, you may want to focus on improving your personal finances and how you handle credit. Both FICO and VantageScore summarize the information found on your credit reports. 

Your credit reports are provided by the three credit bureaus:

  1. Equifax

  2. Experian

  3. TransUnion

The FICO scoring model weighs different factors and the effect they have on your credit score:

  • Payment history: 35%

  • Amounts owed: 30%

  • Length of credit history: 15%

  • New credit: 10%

  • Credit mix: 10%

VantageScore doesn't define the exact percentages they use to determine scores, but certain factors are more influential than others:

  • Total credit usage, balance and available credit: Extremely influential 

  • Credit mix and experience: Highly influential 

  • Payment history: Moderately influential 

  • Age of credit history: Less influential 

  • New accounts: Less influential

If you’d like to have a good credit score, focus on paying down your existing debt. Additionally, make on-time payments in full. Taking these steps can help you boost your credit score.

The right credit score can help you get a personal loan 

Personal loans can be an attractive lending option. They typically don’t come with many restrictions, allowing them to be used for a variety of things. Interest rates on personal loans may also be lower than they are on a credit card.

Before you apply for a loan, do your research to ensure you’ve found the right financial product for your needs and personal situation. Lenders may offer pre-qualification checks, so you can see if you have the right credit score for personal loans. Your odds of approval will depend on your credit score, your debt-to-income ratio and whether you’re applying for a secured or unsecured loan.

If you know you’ll be applying for a personal loan soon, you may want to work on improving your credit scoring factors. One tool that can help is the credit card payoff app from Tally†. Tally not only helps you manage due dates, but it can also help you pay down debt quickly and efficiently with a lower-interest line of credit. 

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.