You might have a dashing smile and charming personality, but when it comes to getting a personal loan, lenders are looking at a different kind of profile: your credit score.
If you’re looking to get a personal loan — or you’ve been denied in the past — your credit score may be the reason. Find out how much your credit score matters to personal loan lenders.
What’s a credit score?
Your credit score is the biggest influencer in personal loan approval. It showcases how responsible you are with money and if you’re able to pay a lender back on time without issue. The higher your credit score, the more trustworthy you look to lenders.
A perfect credit score is 850. To lenders, you may be the perfect candidate to receive a loan if you have a credit score that high. With a perfect score, you’ll see low interest rates because lenders trust you to pay back your loan on time and in full. But few people are scored so highly.
Credit scores range from 300 to 850, depending on your past payment history, the amount of debt you owe, and how long you’ve had credit, among other factors.
Why is a credit score important for a loan?
While you can get a personal loan with subprime credit, it isn’t a sure thing. Jeff White, an editor at Fit Small Business, says that your credit score doesn’t affect your approval odds — it affects how much you’ll pay in interest.
“Someone with a 700 credit score might get approved for an auto loan with a 5.00% interest rate, but someone with a 680 credit score might end up getting an 8.50% interest rate,” White says. “That may not seem like much, but ultimately it could be the difference of about $40 per month.”
And depending on how long your loan terms are, that could be hundreds of dollars over the life of the loan. The extra cost adds up.
What’s a good interest rate for a personal loan?
If you’re in the market for a credit card or a personal loan, your score could give you an affordable monthly payment — or keep you from getting one.
Maggie Germano, a personal finance coach for women, says anyone with a credit score less than 600 will most likely not get approved for a personal loan. So you’ll want to stay above that to keep your approval chances higher.
“If you have a credit score between 600 and 700, your personal loan offerings will vary,” she says. “Any interest rate that is lower than your credit card rates is going to be a win. On average, if you’re in this range, you’ll probably get interest rates of 15.00% to 30.00%.”
For some lenders, such as Upgrade, you could get a personal loan with a minimum credit score of 620 and see interest rates between 6.99% and 35.97%. Other lenders may require a higher credit score and offer lower interest rates.
Overall, a good interest rate for a personal loan is in the single digits. If your credit score is on the good to excellent side, your interest rates will be some of the lowest around, according to Germano.
“If you have excellent credit, between 720 and 850, you’ll likely get the best rates out there,” she says. “Some personal loan companies offer interest rates as low as 5.00%, which is an amazing difference from typical credit card interest rates. I would say that any interest rate between 5.00% and 10.00% would be a great deal.”
How to boost your credit score
If you’re stuck with a low or just alright credit score and looking to give it a much-needed boost, here are a few things you can do:
- Pay your debt. Whether you have credit cards or student loans, make at least minimum payments every month. Doing so could lower your debt load while also building a healthy payment history.
- Get a credit card. If your credit is on the lower side, you might need to get a secured credit card. Once you’ve proven you’re responsible, you can look into applying for a regular credit card.
- Become an authorized user. If you know someone that has good credit, ask them if you can become an authorized user on their credit card. This is a quick way to boost your score without getting a credit card or loan yourself.
Your credit score matters when it comes to personal loans
For banks and other lenders, your credit score is one of the only ways to prove your creditworthiness. Make sure you continue to build your credit, even if it’s already in good standing. If it’s not, work on ways to boost it faster so when it does come time to get a loan, your interest rates will be as low as they can be.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|