What Credit Score is Needed for an Unsecured Personal Loan?
Getting approved for an unsecured personal loan often depends heavily on your credit score. An unsecured loan means the lender does not require collateral to issue you the funds. Without an asset like your home or auto securing the loan, lenders rely even more on your creditworthiness to evaluate lending risk.
Just what constitutes good credit can differ substantially among the many banks, credit unions, peer-to-peer lending networks, and online lenders offering unsecured loans. While each lender has its own specific approval criteria, here are some general credit score guidelines for qualifying for an unsecured personal loan along with steps to boost your chances of getting approved at the best rates.
Personal Loan Credit Score Levels
Do you know how much your credit score is? If not, you can get a credit report from a website like Credit Karma or Free Credit Report. Once you are aware of your credit score, take a look at the following list to see which category you belong to.
· Prime Borrowers
Credit Scores Above 720 Applicants with FICO credit scores above 720 or so tend to get classified by lenders as prime borrowers eligible for the very best rates and loan terms the lender advertises. Credit histories are established with no recent late payments, collections, charge-offs, liens, or bankruptcy records. Debt-to-income ratios are below 30%. Qualifies for maximum loan sizes.
· Near-Prime Credit
Scores from 690 to 719 Personal loan approval remains likely but maximum loan sizes start getting reduced for applicants falling into this near-prime credit band along with slightly higher rates. A limited number of recent credit dings acceptable here but late payments should not exceed 30 days past due. Debt ratios between 30 to 40%.
· Non-Prime Borrowers
Scores Under 690 Once into the non-prime zone of under 690 for FICO scores, unsecured personal loan approval from traditional banks becomes less likely or requires a cosigner with better credit to meet automated underwriting requirements. Applicants will need to turn to subprime lenders that specialize in riskier borrowers but be prepared for much higher interest rates and large origination fees on smaller maximum loan amounts approved.
· Bad Credit
Scores Below 580 Those with bad credit scores below 580 will probably need to explore secured loan options allowing them to put up an asset like their auto title as collateral in exchange for a loan based more on the collateral value than their low credit scores. Otherwise very high rate lenders charging interest rates over 36% APR would be the only option.
What Affects Personal Loan Credit Score Requirements
Several factors influence the minimum credit scores and criteria lenders utilize to make approve or deny loan applications:
- Loan Type – Requirements tend to be higher for long term installment loans vs short term payday loans or cash advances. Secured loan options can also bypass credit requirements.
- Loan Purpose – Less scrutiny may come with loans issued to refinance or consolidate higher rate debt rather than borrowing for discretionary purchases.
- Loan Amount – Lower term personal loans have lower score requirements. Max loan eligibility requires higher scores. First time borrowers also face more scrutiny.
- Lender Type – Each lender sets their own requirements that best align with their appetite for risk based on the interest rates charged on their loan products. Online lenders generally have lower requirements than banks.
- Economic Conditions – When the economy weakens and late payments rise, some lenders tighten credit requirements to reduce risk exposure in their portfolio.
Boosting Your Chances for Loan Approval
Beyond knowing what credit score ranges align with different lender criteria, there are also several proactive steps you can take to maximize your changes of qualifying for affordable loan terms:
- Pay Down Balances – Reduce credit utilization below 30%.
- Resolve Any Credit Report Errors – Dispute and remove mistakes weighing down your score.
- Become an Authorized User – Get added as an authorized user to accounts with excellent payment history.
- Meet Minimum Requirements – Review what level of income, debt ratios, and score ranges align with the lender’s published criteria before applying.
- Add a Cosigner – Bringing on a cosigner with better credit can help offset your credit weaknesses.
Weighing Lender Tradeoffs
Finally, with a deeper understanding that credit requirements for unsecured personal loans can vary substantially between traditional bank lenders, online lenders, peer-to-peer networks, credit unions, and subprime financing companies, you can balance interest rates, fees, and approval odds as you evaluate loan offers that best match your credit profile and financial situation.
Just be sure to compare all costs including origination fees and early repayment penalties before committing to ensure the loan optimally aligns with budgeting for the monthly payments over its full repayment term.
Final Words
With some discipline boosting your credit score and history along with researching lender criteria that aligns with your current credit profile, getting approved for an unsecured personal loan is an achievable goal at interest rates that fit within your budget. Just be realistic when assessing what loan terms, you can actually qualify for based on your score and debt ratios to avoid unnecessary application rejections.