The credit score requirements for individuals to qualify for personal loans varies from one lender to the next. The vast majority of creditors favor borrowers with excellent or good credit scores (690 FICO or better), although certain creditors will consider people with terrible credit as well (below 630).
According to an unnamed database of NerdWallet customers who have been pre-qualified to get personal loans, the minimum credit score required to be eligible to get a personal loan ranges from 610 to 640. This information is based on the requirements of lenders who offer personal loans.
Even having a good credit score does not ensure that you will be approved for credit or that you will obtain the best possible interest rate. Your creditworthiness, which is typically determined by your credit history as well as your credit score, in addition to the amount of income and debt, is one of the primary factors that determine whether or not you are eligible for the program. Utilize the calculator that is located to the right of this page to determine the many types of loans for which you might be eligible based on your credit score.
What is required to be approved for a personal loan?
Even if your credit score is at or above the required level, there is no assurance that you will be approved for a loan.
When determining whether or not to provide a loan, creditors have the ability to base their decision on a number of different criteria. They might have a look at extra information, such as the university that you went to and the industry that you work in. People will look at your income, as well as your income history, your debts, and your credit record.
The following factors will be taken into consideration by potential lenders when assessing applications for personal loans:
- Credit score: The FICO credit scoring model is used by the majority of lending institutions, while the VantageScore model is utilized by a few lending institutions. Some lenders assert that they construct their very own scoring system for prospective applicants by basing it on the information they collect about their borrowers and using that information to assign points.
- Credit history: When deciding whether or not to grant a loan application, they give more weight to applicants with extensive credit histories. The lender might stipulate that it requires a credit history of around two to three years, although having a long past is almost always advantageous. Your ability to pay your obligations on time is demonstrated to potential lenders by the number of accounts that are included in your credit history. If you have a number of credit cards, mortgages, or auto loans with consistent on-time payments, you may have a better chance of getting approved for further credit.
- Income-to-debt ratio: When deciding who to lend money to, lenders seek potential borrowers who bring in sufficient monthly income to cover all of their monthly financial commitments, including the loan payment. When determining whether or not to give you additional credit, many lenders look at the proportion of your income that goes toward paying down your debt.
- Flows of free cash: Your ratio of debt to income does not take into account expenses such as rent, groceries, or petrol money. As a consequence of this, some creditors look into the transactions on your bank account to figure out how much money borrowers have after paying off their debts and covering their other obligations. This is what the lenders mean when they talk about “free cash flow,” and it’s important to them since the more money you have in your account, the more likely it is that they will approve your application.
Bad or Fair Credit Personal Loans
Although lenders evaluate a number of variables when deciding whether or not to grant a loan, the credit score of the applicant is typically considered to be one of the most important considerations.
Borrowers, regardless of whether they have good or bad credit, frequently qualify for higher interest rates, which can reach as high as 36%. If you have a low credit score, it’s possible that a lender will only approve you for a smaller loan amount.
When determining whether or not to provide you with a loan, creditors who work with borrowers who have respectable credit may use your credit score. When an application is submitted, for instance, a credit union will consider not only the applicant’s current standing within the credit union but also a number of additional factors.
The act of applying for a loan might occasionally cause a drop in the credit score of the applicant. The pre-qualification process won’t affect your credit score and will assist you in evaluating potential lending opportunities. If you are unable to meet the requirements for the loan that you are searching for, you can raise your chances of being approved by finding a co-signer or working to improve your credit score.