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What Credit Score Do I Need For a Loan?

Your credit score is important for lots of reasons, not least because it can help lenders decide whether to approve your loan application. When it comes to the credit score you need for a loan, a better score can improve your chances of borrowing with the cheapest loan rates.

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Many factors determine whether you can get a loan or not, and one of the most important is your credit history. Lenders usually check your credit history to work out how likely it is that you’ll repay the money you’re applying for.

Your credit score is a number calculated by credit reference agencies (CRAs) based on your credit history, which indicates how the lender may view your credit application. 

Read on to find out more about how credit scores can affect your loan application.

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Do you need a good credit score for a loan?

You don’t need a set credit score to get a loan. The credit scores that the CRAs give you indicate how a lender may view your credit history when you apply, based on the data in your credit file.

The lender usually has its own system for working out whether to lend you money, based on your credit history and whether you can afford the repayments. Your income and other information about your finances play a part in a lender’s decision, such as your debt-to-income ratio, so your credit score isn’t the only factor to consider.

Furthermore, eligibility criteria vary across lenders. Some only offer loans to people with a good credit history, while others specialise in lending to those with a bad credit history. 

However, your credit score is still important because it can help you understand which loans you may be eligible for. A better score indicates that you may have more options for borrowing money, at potentially cheaper interest rates than someone with a worse score. 

A bad credit score indicates that your options may be more limited and your credit application may even be refused altogether. You may decide to apply for a loan from a specialist bad credit lender, or take the time to improve your credit score before applying for a loan.

Check your score from each CRA before applying for a loan

There are three credit reference agencies in the UK, Experian, Equifax and TransUnion. Each one gathers data about your financial behaviour to compile your credit report, which your credit score is based on. The CRAs use different credit score ranges:

  • Experian’s ranges from 0 to 999
  • Equifax’s ranges from 0 to 1000
  • TransUnion’s ranges from 0 to 710

This means you have three credit scores you can check. But even though they have different scoring systems, these agencies all base your credit score on similar data about your credit history and how you have managed your finances previously. Some of the factors that affect your credit score include:

  • any applications for credit
  • credit repayments (including late or missed payments)
  • how much of your available credit limit you’re using
  • any financial ties, such as joint accounts or joint loans

When you apply for credit, the provider usually checks your credit history from a CRA. Lenders can use different agencies for their credit checks, so it’s worth seeing what your score is with each agency to get an idea of your overall situation.

» MORE: How to check your credit score

Loans for good credit scores

For the three main CRAs, a ‘good’ or ‘excellent’ credit score is:

  • 881 and above (Experian)
  • 671 and above (Equifax – the top two categories from Equifax are referred to as ‘very good’ and ‘excellent’)
  • 604 and above (TransUnion)

If you have a good or excellent score, you are in the best position to borrow affordably as you are likely to qualify for a wide range of deals, including loans from banks and online lenders.

You are also likely to qualify for the most competitive rates of interest as lenders will view you as a lower risk.

However, a good credit score won’t guarantee you get a specific loan as lenders will also look at your income, expenses, and other factors before making a final decision.

You can use a personal loan eligibility checker to see what deals you may qualify for, without affecting your credit score.

If you have a good or excellent credit score and want to borrow a smaller amount of money over a short period of time, then an interest-free credit card could be an alternative option to a loan.

The most competitive cards are available to those with the best credit scores and, unlike a personal loan, if you clear your card in full each month, or take out a card with a 0% offer, you won’t pay any interest at all. 

Be sure you make all your repayments on time and clear your balance before interest charges apply, as credit cards can be an expensive form of borrowing if you fall behind on payments.

» MORE: Compare the best personal loans

Loans for fair credit scores

A ‘fair’ credit score is classed as anything between:

  • 721 and 880 (Experian)
  • 531 to 670 (Equifax, whose ‘good’ category may correspond more closely to the ‘fair’ category used by the other CRAs)
  • 566 and 603 (TransUnion)

You could still be able to borrow from mainstream lenders with a fair credit score, but you may not be accepted for their full range of loans or cards. 

You may also be charged a higher interest rate on money you borrow than if you had a good or excellent score. 

However, some lenders specify that you need a good credit history to be considered for a loan. So, if you have a fair credit score always check the eligibility criteria of a lender to see if it has any specific requirements.

It’s also worth using an eligibility checker to see if you qualify for a loan from a lender. Checking your eligibility involves a soft credit check which won’t affect your score, so it can be useful if you want to see your chances of approval before formally applying.

This can also help to make sure you don’t apply for a loan you don’t qualify for and get your application rejected. 

Alternatively, you could use a loan eligibility service instead of applying for a loan directly from a lender. 

This allows you to see your chances of getting a loan from multiple lenders, without any impact on your credit score. It’s worth checking to see how many lenders it looks at and to make sure it only uses soft credit checks.

If you don’t need a loan urgently, you may want to wait and take some time to improve your credit score. While you could still get a reasonable range of loan options if you have fair credit, a better credit score could open up even more options and allow you to get a lower rate of interest. 

» MORE: Loans for borrowers with fair credit

Loans for poor credit scores

If you have a ‘poor’ or ‘very poor’ credit score, you will find it harder to borrow from mainstream lenders or be accepted for the most competitive loans, mortgages or credit cards.

A poor or very poor credit score is classed as:

  • 720 and below (Experian)
  • 438 and below (Equifax, whose bottom two categories are referred to as ‘fair’ and ‘poor’)
  • 565 and below (TransUnion)

A poor credit score indicates that you have had problems managing your finances and credit responsibilities in the past, such as missing repayments, so lenders are likely to view you as a higher risk. 

As a result, you may not qualify for as many products, and those you are eligible for are likely to come with higher interest rates to compensate for the lender seeing you as a riskier person to lend to.

If you have a bad credit score, you may also find that you can’t borrow as much as someone with a better credit score.

There are specialist lenders that provide bad credit loans for those with poor credit scores. These will come with higher interest rates and will normally be for small amounts, but they will likely be a less expensive option than taking out a payday loan.

A guarantor loan may also be something to consider if you have a poor credit score. This is when a friend or relative ‘guarantees’ the loan and agrees to step in to pay a loan if you are unable to do so, giving the lender more confidence that they will get their money back. As a result, lenders may be more inclined to accept your application.

However, a guarantor loan will tie your finances to another person, and if you fail to pay on time their credit file could be damaged too.

Some providers such as credit unions also offer credit builder loans, which are specifically designed for people with a poor or limited credit history. These kinds of loans aim to help you build up your credit history to improve your chances of accessing more kinds of credit in the future. 

Before applying for a loan with bad credit, consider whether you really need a loan right now. If possible, it may be better to delay your application and take steps to improve your credit score. A better credit score could help you to access more deals and lower interest rates, so waiting a few months could save you money in the long run.

What else affects loan eligibility?

Your credit score is important to help lenders make a decision on your loan application.

But it’s not the only factor they will consider. Lenders could also look at: 

  • your employment status
  • your income
  • your regular expenses
  • your existing debts

This information, together with your credit history, will help lenders decide whether to offer you a loan.

Whatever your credit score, it’s always worth checking your eligibility for a loan to see if you are likely to be accepted. It can reduce your chances of applying for an unsuitable loan and having your application being declined. Plus because an eligibility check should only involve a soft credit check, it won’t affect your credit score.

Whenever you apply for a loan, lenders will usually conduct a hard credit check, which will be recorded on your credit file. Too many applications for credit can affect your score and be off-putting to lenders, so only apply for a loan if you are confident of being accepted.

» MORE: Am I eligible for a personal loan?

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