What credit do you need for a personal loan?

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The credit you need for a personal loan varies by lender. But to get the best interest rates, you usually need good to excellent credit. (Shutterstock)

A personal loan is a useful financial tool when you need to borrow money to cover virtually any expense, such as car repairs, home renovations, or medical bills. When you apply for a personal loan, you must meet the lender’s credit requirements. Good to excellent credit usually gets you the lowest interest rates, but some lenders specialize in bad credit personal loans.

Learn about the credit you need to qualify for a private loan, why your credit score matters and what to consider when comparing personal loan lenders.

Believable makes it easy View your prequalified personal loan rates from various lenders offering loans for a wide range of credit scores.

What credit rating do you need to qualify for a personal loan?

Each lender has their own creditworthiness requirements for a personal loan. Because of this, it’s likely possible to find a personal lender who will lend you a loan regardless of your credit history.

However, you usually need at least good credit to get a personal loan with reasonable interest rates and loan terms. The better your credit score, the better your interest rate is likely to be and the more borrowing options you have.

Most lenders use the FICO credit scoring model when deciding whether to approve you a loan. Here is how FICO breaks down credit score ranges:

Why does your credit score matter when applying for a personal loan?

Credit scores are three-digit numbers that represent your credit history as reported on your credit reports from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion. The higher your credit score, the more likely it is that a lender will lend you money. Since a higher credit rating makes you more likely to repay your loan in the eyes of the lender, they usually offer borrowers the best interest rates and loan terms good credit.

If you have a bad credit score, you’ll have to do a little more work to find a lender that will offer you a personal loan. Some lenders will approve you for a loan even if you have one bad credit or lack of credit history. But you’re probably paying a higher interest rate on a loan than someone with good or excellent credit.

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Factors affecting your credit score

The following factors work together to determine your creditworthiness:

  • payment history – This is the most important factor in determining your creditworthiness and accounts for 35% of your score. If you make your credit card and bill payments on time every month, you are improve your credit score. If you make late payments or miss so many payments that you default on a loan, it can damage your credit score.
  • Credit Utilization Ratio — Your credit utilization ratio represents how much of your available credit you are using and makes up 30% of your FICO score. The lower your credit utilization ratio, the more your score will benefit. Ideally, you want to keep this ratio under 30%.
  • Credit History Length — If you can build a credit history from a young age, you’re off to a good start. The longer your credit history, the more your credit score is likely to benefit. Keeping an older credit account open, even if you don’t use it often, can help you maintain a longer credit history.
  • credit mix — A varied mix of credit products on your behalf, such as Things like a student loan, credit card, and car loan can demonstrate to lenders that you are able to manage and repay multiple types of debt at the same time.
  • New Credit — Applying for or opening too many new credit accounts in a short period of time can scare lenders because it signals that you may need to borrow money to make ends meet. When applying for a personal loan, avoid applying for new forms of credit in the months leading up to your loan application.

You can Compare personal loan rates on the Credible platform and it will not affect your credit score.

Can You Get a Personal Loan If You Have Bad Credit?

Yes, you can get a personal loan if you have bad credit. Some lenders even specialize in bad credit loans.

Consider a peer-to-peer lender that will accept a lower credit rating and instead focus on work and educational history when deciding whether to lend you money. If you belong to a credit union, you may have more lenient borrowing criteria than some larger banks or financial institutions.

If you are having trouble approving a personal loan on your own, you can apply with a co-signer who has good or excellent credit. Adding a co-signer to your loan application can make it easier to qualify for a personal loan and help you secure a lower interest rate.

How a personal loan can affect your credit score

Taking out a personal loan can affect your creditworthiness in different ways:

  • Improves your credit mix — Taking out a personal loan can help you improve your loan mix.
  • Creates a payment history — As long as you make your personal loan payments on time, you’re working to build a positive payment history.
  • Generates a hard request — When you apply for a personal loan, the lender will check your credit history with a tough credit request. This can negatively affect your credit score, but will usually recover after a few months.

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What about loans without a credit check?

Loans without a credit check are a type of loan designed for people with bad credit or no credit history. Because these loans do not require a credit check, lenders compensate for the risk they take by charging high interest rates or additional fees. Loans without a credit check can be easier to qualify for than traditional personal loans – but this easy eligibility comes with a high cost.

Payday loans and title loans are two types of loans that are not required good credit. These small, short-term loans come with fees that can equate to sky-high annual percentage rates (APRs) of nearly 400%, according to the Consumer Financial Protection Bureau. These loans can trap you in a cycle of debt and should only be considered as a last resort.

What should you consider before choosing a personal loan lender?

Regardless of your credit rating, consider the following factors when comparing different lender options:

  • interest rate – The higher the interest rate, the more you pay over the life of the loan. Find out which lender can offer you the lowest interest rate.
  • Repayment Period — How long a repayment period is can affect your monthly payment amount. While shorter repayment terms can help you save on interest, they usually come with higher monthly payments. Make sure the lender you choose can offer you repayment terms that work for your budget.
  • loan amountIt’s important to only borrow what you need so you don’t end up paying interest on unnecessary funds. Find a lender who will lend you the full amount you need.
  • Fees – All lenders charge different fees. Ask any lender you’re considering what fees you’ll have to pay, e.g. B. Processing fees for processing the loan or prepayment penalties for early amortization of the loan.
  • Co-signer option — Not all lenders allow co-signers on personal loans. If you want to apply with a co-signer to increase your chances of qualifying and earn a better interest rate, you need to find a personal lender that accepts co-signers.

How to apply for a personal loan

Different lenders have different application processes, but when applying for a personal loan, you can generally expect the following steps:

  1. Compare lenders. Before applying for a personal loan, you should pre-qualify and compare yourself with different lenders to see which one can offer you the best personal loan for your needs.
  2. Choose a loan option. Once you have found a lender, you can choose which of their loan products you would like to apply for.
  3. Please, fill in the application! When applying for a personal loan, you must provide personal and financial information such as: B. Documents proving your identity, employment status and income.
  4. Get your money. If you are approved for a loan, the lender pays the money, usually by depositing it directly into your bank account.
  5. Start paying. After receiving your loan funds, you begin making regular payments (usually monthly) until you have fully repaid the loan according to your repayment period.

When you’re ready to apply for a personal loan, visit Credible quickly and easily Compare personal loan rates from different lenders in minutes.

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