Average credit score for personal loans

The average FICO credit score in the U.S. was 717 in late 2024. This is down only one point from the same time one year prior, all while many consumers face economic uncertainty. FICO’s analysts point to the toll increased consumer debts and high interest rates have taken on Americans.

To qualify for a personal loan, you generally need a minimum credit score of at least 580 — though some lenders have lower requirements. However, your chances of getting a low interest personal loan rate are much higher if you have good-to-excellent credit, typically a score of 740 and above.

What credit score is needed for a personal loan?

When lenders evaluate your loan application, they want to see that you have a history of repaying your debts as agreed. Your credit score is a window into your debt and repayment history, and is a key factor in determining whether you will qualify for a loan and how much interest you will pay.

The most commonly used credit scoring model is FICO, with scores ranging from 300 to 850. Your FICO credit score is determined based on your payment history, total outstanding debt, the length of your credit history, your credit mix and any new debt you’ve taken on. Your payment history and total outstanding debt are weighted most heavily, accounting for 35 and 30 percent of your score, respectively.

Generally, the minimum credit score for a personal loan is 580. To qualify for a lender’s lowest interest rate, you typically need a score of at least 800 and a high income.

FICO credit score and what it means for personal loans

Your FICO score is directly correlated with the personal loan interest rate you receive. The higher your score, the lower your rate. Understanding your score can help you better prepare for a personal loan application.

It’s more difficult to qualify for personal loans with a poor credit score. If you do find a lender you qualify with, your interest rate will be high and you’ll have lower borrowing limits. Those with fair credit have a better chance of qualifying, but you may still only qualify for low loan amounts.

Borrowers with good credit will likely receive a lender’s mid-range rates, possibly lower, and qualify for higher loan amounts. A lender’s lowest rates, largest loan amounts and longest repayment terms go to borrowers with excellent credit and stable income.

How do personal loans affect your credit score?

Borrowing any type of loan may have a slight negative impact on your credit score because you are taking on more debt and there is likely a hard credit check. However, if you use a personal loan to consolidate debt or refinance, you will likely be able to improve your credit score significantly over time.

Making regular, on-time payments will also help you improve your credit score over time. Overall, the exact effect a personal loan has on your credit will depend on how you use it and how diligent you are at repaying it.

Benefits of personal loans

Personal loans can be a good way to build your payment history, improve your credit mix and reduce your credit utilization ratio. In addition, you may be able to access lower rates than you could with a credit card.

• Building a payment history: Making loan payments on time establishes a positive payment history that will improve your credit score over the life of the loan.
• Improving your credit mix: Having multiple types of credit helps improve your credit score. If you already have a line of credit or credit card, an installment loan will improve your credit mix and likely raise your credit score.
• Reducing your credit utilization ratio: Your credit utilization ratio is the measure of your available revolving credit and how much of it you’re using. A debt consolidation loan for your revolving debt could improve your credit utilization.
• Lower interest rates: Personal loans generally have lower interest rates than credit cards, especially if you already have good credit. This makes it easier to make monthly payments on time and keep your credit score intact.

Drawbacks of personal loans

• Additional debt: Every time you take out a loan, you take on additional debt. While using personal loans to consolidate debt can be a good idea, examine your financial habits to be sure you won’t overspend before taking on more debt.
• Variety of fees: Personal loan lenders can charge a variety of fees, with late fees and non-sufficient funds (NSF) fees being the most common. However, you may also need to keep an eye out for origination fees, which can add significant cost to your loan.
• Hard credit inquiry: When you apply for a loan, the lender has to do a hard credit check, which can have a negative impact on your credit score for a few months. This won’t last long, however, so unless you need to apply for a mortgage or other form of credit, don’t let a small drop in your score deter you.
• Potentially high interest rates: While personal loan interest rates are lower than credit cards on average, personal loans often have high rate caps. Borrowers with bad or fair credit may be saddled with a high interest rate, making it more difficult to make payments.

How to build your credit

If you’re working on improving your credit score for a personal loan, there are many steps that can help achieve this goal. Some of the most effective ways to build your credit score include reducing your debts, focusing on on-time payments and being smart about the credit you already have access to.

• Reducing debt: Keeping your debt balances below 30% of your available credit limit can improve your credit score. If you have balances above that threshold, focus on paying them down to help improve your score.
• Make on-time payments: Consistently making on-time payments on your credit cards and other loans, like a mortgage or auto loan, is one of the best ways to quickly build your credit score.
• Credit cards: Opening a credit card and using it responsibly month after month can be a great way to build your credit score. It may also help you access other benefits, such as being able to view your credit score more regularly.
• Become an authorized user: Becoming an authorized user on a family member’s credit card can also help increase your credit score without going into debt. The key is selecting a family member who has a solid credit score already and a track record of on-time payments. By becoming a user on their account, their payment history will translate to your credit profile as well.

Personal loans for bad credit

The minimum credit score needed to qualify for a loan depends on the lender. Evaluate individual lender requirements before applying. If you struggle with your credit and are looking for a personal loan, look at bad credit personal loan rates. Bad credit personal loans tend to have more flexible requirements, and lenders weigh a borrower’s entire financial history with less focus on credit score.

However, the lower your credit score is, the higher the interest rate on your loan is likely to be. The terms of your loan are likely to be less flexible than a borrower with a higher credit score.

Make sure that the loan terms you qualify for will work for you, and that you can comfortably pay back the loan. You should also look out for predatory lending by verifying a lender’s credentials and checking borrower reviews before applying.

What to consider before applying

Check your credit score and credit reports when applying for a personal loan. Knowing exactly where you stand will help you better determine what rates you will qualify for with any given lender.

You should also take the time to shop around for the best personal loan rates available. Read the fine print for individual lenders to ensure you know exactly what you are signing up for, including additional fees. Finally, be sure to calculate your loan payments and make sure it is well within your budget before committing to a loan.

Bottom line

Before taking out a personal loan, know what your credit score is and have a clear understanding of your overall financial health. Consider the APRs offered, compare lender requirements and calculate your monthly payments based on what you’re eligible for.

To minimize damage to your credit score, prequalify with at least three lenders. Go over the loan terms carefully before choosing the best lender for you.