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What credit score do I need for a personal loan?

There’s no specific credit score you need to get a personal loan, as there are lenders out there for every type of borrower. The higher your score and better your credit history, the more likely you are to be eligible for the better deals and interest rates.

6 min read
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What is a personal loan?

A personal loan - also known as an unsecured loan - is when you borrow a lump sum from a bank or lender that isn’t secured against any assets you own. You agree to repay a set amount each month until the amount borrowed, including interest, has been repaid in full.

How much can I borrow?

This depends entirely on the lender and your own circumstances. The lender will take into account your affordability and your security (like whether you have a steady, full time job). Most brokers and lenders will state clearly on their website the limit they can lend up to.

How can I check my credit rating?

  • There are three main credit reference agencies in the UK, Equifax, Experian and TransUnion. All three have to provide you with a statutory credit report for free upon request.
  • You can get your report via the agency’s website. Whilst the report is free if you choose to have a paper copy delivered you may have to pay postage costs.
  • This will only provide a snapshot of your current situation. For you to receive real-time updates you will need to subscribe to a service either run by the agency or in conjunction with them. These companies often charge a fee.
  • There are several free services that will tell you your score and offer insight into your report, such as our partner, CredAbility. It keeps you updated on your Equifax report and also provides tailored coaching to help you achieve your financial goals.

For more details on this, read our blog  on how to check your credit score for free.

Why does my credit score matter?

Your credit score is an at-a-glance figure that gives an insight into how responsible you’ve been when borrowing money in the past. Lenders use it to evaluate the risk of lending to you and the likelihood of you meeting the terms of your credit agreement.

As well as influencing the decision to say yes or no, it will also impact the amount they’ll lend you and the rate of interest they’ll charge.

All lenders have specific criteria they require for lending money. Your report will be a big part of their decision-making process to decide whether you fulfil their requirements. This will increase your chances of being able to access the best deals available with the lowest interest rates.

Although your score is important, lenders will look beyond it and into your full credit report. This will give a more detailed view of your borrowing behaviour and highlight any serious issues you may have had (such as defaults or CCJs).

What else do lenders look at?

  • Your affordability. This is how much you can afford to borrow, or specifically how much you can afford to pay in instalments each month. It’ll be calculated based on things you tell the lender in the application process, such as income and outgoings, and data they can see from your credit report such as your debt level and credit utilisation.
  • Credit accounts you already have open. Lenders will consider how many credit accounts you currently have before making a decision.
  • Your employment history. Some lenders will also want to know you have been in full-time employment on a long-term basis. This will reassure them you can afford to pay back the loan.

I have a bad credit score – can I still apply?

Irrespective of your financial past, if you are 18 years old or over there will likely be credit options for you. A bad credit score, however, will restrict these. There are lenders that will not consider your application due to the risk of you not paying the money back.

Despite this, there are specialist lenders who provide loans for people with poor credit histories. We ourselves believe in offering people a second chance with finance, which is why we work with many of these. You can read more about our bad credit loans and get a commitment-free decision in just a few minutes.

I have no credit score – can I still apply?

Many lenders are also wary of people with no or little evidence of borrowing money and paying it back. Again this is down to risk, as there is no proof you are a reliable option to lend money to.

As with bad credit histories, this doesn’t rule out all avenues for borrowing. There are lenders who will look beyond your lack of credit history, but it may mean you pay higher interest charges and are offered smaller amounts to borrow.

It’s wise to use soft search facilities and eligibility checkers beforehand. These will let you know how likely you are to be accepted without impacting your credit score. It may also be worth speaking to the bank you have a current account with, as they may offer you a more favourable rate if you’ve been a loyal customer.

What happens if I’m rejected?

Being rejected will damage your credit score in the short term. All applications will be logged as a hard search and will stay on your credit report for a further 12 months. 

While your report won't log the decision of your application, lenders may read between the lines. If there are a number of credit applications within a short space of time and no new accounts opened, they may assume you were rejected. This could give the impression you are overly reliant on credit, which could then negatively influence their decision.

Again soft check facilities or eligibility checkers can help you avoid rejected applications. With our personal loan eligibility checker, we guarantee you a decision before you make a hard application.

How can I raise my credit score?

There are steps you can take to positively influence your credit score. These include:

  • Add yourself to the electoral register
  • Set up direct debits for all your bills so you never miss a payment
  • Add your name to household bills
  • Check your report and remove any mistakes
  • End any former financial associations

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

Alternatives to a personal loan

Personal loans are for a fixed sum of money, but you may find that a source of revolving credit is more suitable. This is when the amount you borrow goes up and down as you need it, as long as you stay within a specifically agreed limit.

These come in the form of credit cards and overdrafts. Credit cards can come with 0% interest introductory offers, which can reduce or cut the interest you pay. You will need to pay off the amount you owe within the timeframe of the offer to do this, and transfer fees may apply. Bear in mind, that lenders normally reserve 0% interest deals for those with good credit scores. 

Overdrafts are often useful for short term lending, particularly as they allow you to borrow money tied to your current account. However, they are becoming more expensive so should be used sparingly.

If you are a homeowner you may want to consider a secured loan instead, particularly if you are looking to borrow over £10,000. These are secured to the equity in your home which means that the risk for lenders is offset to a degree. This can mean you are offered a more favourable interest rate, but your home is at risk if you do not keep up with your repayments.

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Intelligent Lending Ltd is a credit broker working with a panel of lenders.