Personal loans can be versatile and practical, but like most debt, the requirements to take one out can be strict. Plus, different lenders will have different minimum requirements and various credit scores will land you different loan terms.

For example, we recommend a minimum credit score of 670 to qualify for a personal loan. However, there are some lenders who may require higher credit scores and some that require a minimum score of 600. The best terms, though, are typically reserved for high-qualified applicants that meet a lender’s personal loan requirements.

We’ll walk you through how you can increase your qualification chances and how to improve your score to receive more favorable loan terms.

Factors That Impact Your Credit Score

There are multiple credit scoring models, but FICO is the most likely model your lender will use, which is made of the following components.

  • Payment history. Your past payments represent 35% of your credit score and refers to your record of on-time monthly debt payments. Because it makes up a large portion of your credit score, a missed payment could cause a significant drop.
  • Late payments. The number of days late and how long ago you missed a payment also matters also impacts your score. For example, a 30-day late payment is better than a 60-day late payment, and a late payment from this month affects your score more than one from 2018. As time passes, the late payment’s impact will diminish.
  • Credit utilization. Credit utilization makes up 30% of your credit score and refers to how much credit you’re using compared to your overall total credit limit. You should aim for a ratio less than 30% but above 0%. Credit bureaus look at both the credit utilization for each individual card and the total credit utilization among all your credit cards.
  • Credit history length. The average age of your credit makes up 15% of your credit score. Consumers with older credit histories may have higher credit scores than those with more recent accounts. Lenders like a longer credit history because it proves you can manage credit responsibly.
  • Credit Mix. Having both revolving and installment accounts means you have a good credit mix, which accounts for 10% of your credit score. Revolving credit refers to credit cards because there’s no firm payoff date, while an installment credit product is a loan with a fixed payoff date, like a mortgage, student loan, auto loan or personal loan.
  • New credit & hard inquiries. A hard inquiry is when you apply for a new credit product and a lender checks your credit profile. These inquiries will stay on your credit report for two years but will stop affecting your credit score after one year. The number of hard inquiries makes up 10% of your credit score.

Credit Score Needed for a Personal Loan

Lenders use your credit score to determine whether or not to offer you a loan, as well as the interest rate on a loan. Although there are lenders that work with borrowers with credit scores of 600 and below, a lower credit score can mean higher interest rates, and as a result, a higher cost of borrowing.

Credit Score APR Monthly Payment Total Interest
780 or higher
12.99%
$168.45
$1,064.04
720 to 779
16.82%
$177.82
$1,401.38
680 to 719
21.82%
$190.49
$1,857.53
640 to 679
27.35%
$205.07
$2,382.38
600 to 639
29.75%
$211.57
$2,616.66
Less than 599
31.70%
$216.94
$2,809.85
Source: October 2023 data from Credible

How To Improve Your Credit Score

If your credit score falls below 600, you may find it hard to qualify for a personal loan. Here are some simple ways to fix and improve your credit score:

1. Remove Mistakes

According to research from the Federal Trade Commission, one in five people have a mistake on their credit report, which can result in a lower credit score.

Visit AnnualCreditReport.com and view all three credit reports from Equifax, Experian and TransUnion. If you notice a mistake, you can file a dispute directly with the credit bureau.

If you see a negative mark that you recognize, check to see when it was originally made. Most fall off after seven years, but sometimes the company will report after that time. File a dispute with each credit bureau to resolve this issue.

2. Lower Your Credit Utilization Ratio

You can damage your credit score if your credit utilization is higher than 30%. Fortunately, you can quickly improve your score by lowering the utilization. The easiest way to do this is by requesting a credit limit increase or paying down your credit balance.

If you have multiple credit cards, focus on the one with the highest utilization percentage. Once that ratio is below 30%, start paying extra on the one with the next highest utilization. Do this until the utilization percentages for each credit card are below 30%.

3. Stop Applying for New Credit

Because hard inquiries and average credit age make up 20% of your credit score, you should avoid opening new credit accounts if you want to improve your score. You should avoid applying for new lines of credit if you are struggling to manage your debt or planning to apply for another loan.

4. Pay Your Bills On Time

On-time payment history is the most important factor in determining your score, so paying bills on or before the due date can have a significant impact. Set calendar reminders for every credit card or loan due date. You also can typically set up automatic payments through the lender, too.

If you set up autopay, make sure you always have enough money in your bank account. If the payment doesn’t go through and you miss the due date, you may end up with a late payment.

Other Factors That Impact Personal Loan Eligibility

Your credit score isn’t the only element that lenders look at. Here are some other factors that can affect your application:

Debt-to-income Ratio

The debt-to-income (DTI) ratio is the percentage of your monthly debt payments divided by your monthly gross income. Personal loan companies usually like to see a DTI of 36% or less; however, some will allow for a DTI ratio up to 50%.

You can calculate your DTI by adding up your minimum monthly loan and credit card payments. Then, divide that number by your monthly gross income, which is your pre-tax income divided by 12.

Income

Many personal loan companies have a minimum annual income threshold, which varies depending on the lender. For example, Avant has a $20,000 minimum income while SoFi has a $45,000 minimum. Before applying with a lender, review their income requirements to make sure you qualify.