What is the Minimum Credit Score you Need for a Personal Loan?
A personal loan is money borrowed from a bank, a credit union or an online lender that you pay back in fixed monthly payments over a fixed amount of time. With a personal loan, you can have cash in hand to pay for things like home improvements, debt consolidation, large purchases and more. There are two types of personal loans — unsecured and secured. Unlike unsecured, a secured loan requires collateral to back the loan.
Lenders will take a look at a number of factors like your credit history, credit score and debt to income ratio before approving you for a loan.
A Best Egg personal loan may be a good fit for you if you have several years of credit history, the ability to repay the loan and a credit score of 640 or higher.
Understanding Your Credit Score
Understanding and staying on top of your credit score is important to your financial health. Did you know you can request a free copy of your credit report each year from the three major credit reporting agencies: Equifax®, Experian®, and TransUnion®?
Your payment history is the most important factor in your credit score, representing 35% of the total score. The reason for this is simple — lenders want to make sure you have a history of paying back the money you borrow.
To determine if you’re a good credit risk, lenders also want to make sure you use credit responsibly and will look at your credit utilization ratio which is the amount you owe compared to the available credit on your accounts. The amount you owe accounts for 30% of your overall score.
Length of Credit History
The length of your credit history makes up 15% of your credit score. The amount of time you’ve had credit matters to lenders because it shows how long you’ve been managing credit responsibly.
Having older accounts may positively impact your credit score but too many new accounts could do just the opposite. Credit inquiries and new accounts make up 10% of your overall score.
Lenders like to see that you’re able to manage different types of credit including revolving accounts and installment loans. This is what’s known as your credit mix — making up another 10% of your credit score.
How to Improve Your Credit Score
5 Tips to Improve Your Credit Score
- Pay down existing debt.
Create a monthly budget that helps you reduce spending and pay down debt. If you have multiple creditors with high-interest rates, consider a personal loan to consolidate debt and save money.
- Keep your balances low.
Having high balances on credit cards and other revolving accounts may have a significant impact on your credit score. Try to pay off credit card balances in full each month and keep an eye on how much you owe in comparison to your income. Debt to income ratio is something a lender will likely look at when decisioning a loan application.
- Be cautious about opening a lot of new accounts.
Your credit score takes into account the average age of your credit accounts so opening a lot of new accounts could hurt your score instead of improving it.
- Always make payments on time.
Having a history of making on-time payments plays a significant role in your credit score calculation, so be sure to pay your bills on time. If remembering payment due dates is a challenge for you, consider adding reminders to your calendar, setting up automatic bill payments with your lender, or reducing the number of monthly payments with a debt consolidation loan.
- Know what’s on your credit report.
Take advantage of your free annual credit report. Be sure to look for errors on your report and dispute anything that isn’t accurate.
How to Find the Right Personal Loan for You (And Your Credit Score)
Finding the right personal loan takes time and careful consideration. In addition to the comparing APR, loan terms and fees, think about the following:
- What are you planning to use the money for?
- How much will you need?
- Will the payments be affordable?
- How reputable is the lender?
- What’s the minimum credit score to qualify for a loan with the lender?
To see if your credit score qualifies you for a BestEgg loan, visit the personal loans page.