What credit score do I need for a personal loan?

A personal loan (also known as an unsecured loan) is a form of borrowing that is not attached to an asset you own. You borrow a lump sum, and then make agreed repayments each month until the original loan amount, plus interest, is repaid in full. 
Your credit score provides an indication of:

• How likely you are to be approved 
• How much you may be able to borrow
• What rates you could receive 

Lenders will look at your whole credit history and use their own criteria when assessing your application. A good credit score could mean you're more likely to be approved for higher loan amounts and better interest rates.

How can I check my credit score?

You can check your credit score through one of the three UK credit reference agencies: Equifax, Experian and TransUnion. Each uses their own scoring system, so your score may appear higher with some than others.

You can also request your credit report from them, although this only provides a snapshot of your credit history to date.

To receive real-time updates, you can subscribe to one of the agencies, or use one of several free services (such as CredAbility) to keep you up to date with your score.

What else do lenders look at?

• Your affordability - Lenders will assess your income and expenditure to see if you can afford the monthly payments on a loan.
• Your credit history - To see how well you’ve managed credit agreements in recent years, lenders will look at your repayment history and your current credit utilisation to make sure you repay what you borrow, and don’t appear to be too reliant on credit.
• Your employment status - Many lenders will only approve loan applications from people in part- or full-time employment or retirement on a fixed income.

Can I get a personal loan with bad credit?

Providing you are aged 18 or over, you could have credit options available to you, whatever your credit history. A bad credit score, however, could limit these options. You will likely have fewer lenders to choose from and may not be eligible for the highest loan amounts or the lowest interest rates.

There are brokers and providers like ourselves at Ocean, who consider all credit histories. You can read more about our bad credit loans and get a commitment-free eligibility check in just a few minutes.

I have no credit score – can I still apply for a personal loan?

Some lenders may approve loan applications from people with thin credit files (where you have little to no credit history), but your options may be limited. To expand your options and increase the likelihood of being accepted, you may want to consider building your credit history before you borrow.

It can take time to build a good credit score. Because applying for credit often can lower your credit score, it’s a good idea to use an eligibility checker beforehand to see how likely you are to be accepted.

What happens if I’m rejected for a loan?

Aside from not receiving the loan, your credit score will likely drop. Applications are recorded as hard searches on your credit report and stay there for 12 months. Multiple applications in a short space of time (such as within a few months) can lower your credit score further.

Using an eligibility checker before you apply will show how likely you are to be approved for credit and won’t affect your credit score.

How can taking out a loan affect my credit score?

Taking out a personal loan can affect your credit score in various ways.

• Applying for credit results in a hard check on your credit report, which can cause your credit score to dip temporarily.
• Keeping up payments on your loan can build your credit score, whereas late or missed payments can cause it to drop.
• Using a loan to clear debt could improve your credit utilisation ratio (how much of your total available credit you are using), which can boost your credit score.

How can I build my credit score without taking a loan?

There are steps you can take to positively influence your credit score without taking out a loan. These include:

• Add yourself to the electoral register
• Add your name to household bills
• Set up Direct Debits for your bills to reduce the chances of missing a payment
• Check your credit report and remove any mistakes
• End any former financial associations

You can discover more ways to improve with our ultimate credit score improvement guide.

How do you correct mistakes on your credit report? 

First, check your credit report with the three main credit reference agencies in the UK: Equifax, Experian, and TransUnion.

If you find a mistake, contact the relevant agency in writing and ask them to correct it. If you discover a financial association that is no longer active – for example, if you took out a joint loan with a partner and it has since been paid off – ask each agency for a ‘notice of disassociation’ to remove the link.

Alternatives to personal loans    

Depending on the reason you need to borrow, you may find that other types of lending better suit your needs.

• Secured loans – If you are a homeowner, you can use your property as collateral against a secured loan. As a result, you can typically borrow larger sums over a longer period. Be mindful that falling behind with payments could result in the loss of your home.
• Credit cards – These are better suited to short-term use for smaller amounts. Interest rates can often be high, but paying off the entire balance monthly prevents you incurring these costs.