Zina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Zina Kumok ContributorZina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Written By Zina Kumok ContributorZina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Zina Kumok ContributorZina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Contributor Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Written By Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Lead Editor, Mortgages & LoansUpdated: Jun 3, 2021, 2:23pm
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
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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.
There are multiple credit scoring models, but FICO is the most likely model your lender will use, which is made of the following components.
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.
780 or higher 720 to 779 680 to 719 640 to 679 600 to 639 Less than 599 Source: October 2023 data from Credible See More See LessIf 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:
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.
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%.
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.
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.
Your credit score isn’t the only element that lenders look at. Here are some other factors that can affect your application:
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.
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.
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ContributorZina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top performer in the mortgage industry and his entrepreneurial success to simplify complex financial topics. Jordan aims to make mortgages and loans understandable.
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