Your credit score is one of the most important factors lenders take into consideration when you apply for a personal loan. It demonstrates your history of on-time payments and how responsible you are when you borrow money.

Reputable lenders will check your credit — so the better your score, the more likely you are to get a low interest rate.

Credit scores used to evaluate personal loan applications

There are two ways to calculate credit: the FICO model and the VantageScore model. Because they are private businesses, they don’t disclose specific information about how credit scores are calculated beyond broad categories.

They are also competitors, and lenders may opt to use one over the other. So when you apply, ask your lender which it uses. And be sure to know both your FICO score and your VantageScore when you start to submit applications.

FICO score

Every FICO score uses the model developed by the Fair Isaac Corp. Scores range from 300 to 850, with 300 being the lowest possible score and 850 being the highest. It takes into account five factors when determining your score:

  • Payment history, 35 percent.
  • Amounts owed, 30 percent.
  • Length of credit history, 15 percent.
  • Credit mix, 10 percent.
  • New credit, 10 percent.


The VantageScore uses similar categories as FICO, although it does not list specifically how much each category impacts your overall score.

  • Credit utilization.
  • Account types.
  • Payment history.
  • Average age of accounts.
  • New accounts.

Its scores also range from 300 to 850. However, there are only five categories — which means good credit and excellent credit have a broader range of scores.

How your credit score affects your chance of getting a personal loan

Having a good credit score — either a FICO score of 670 or a VantageScore of 660 — will show lenders that you know how to handle your debts and have a history of on-time payments, among other factors.

Because both scoring models take credit utilization, payment history and age of accounts into consideration, lenders will be able to see how your finances have been holding up over the last few years. A good credit score reflects that, so having good credit will increase your overall chance of approval and help you qualify for lower rates.

There are lenders that offer loans to borrowers with fair or poor credit. However, these will have high rates that make monthly payments significantly more expensive. They may also be difficult to qualify for if you don’t meet other eligibility requirements set by the lender.

Other factors that affect your eligibility

Beyond your credit score, lenders will also take into account your income, employment and other debts when you apply.


Your income determines how much you can reasonably afford to pay each month. A higher income — and limited debts — means you have more ability to pay back your loan.

For a lender, this shows that you will be able to make your payments regularly and that your finances won’t suffer from having a loan. And if circumstances do change, you have enough room in your budget to keep making payments.


You won’t necessarily need to be a full-time employee of a company to be eligible for a loan. However, you will need to show a source of income — and some lenders may prioritize certain types of employment over others.

That being said, you should still be able to qualify for a loan if your income comes from benefits, alimony or other sources, provided you have enough each month to keep up with payments.

Current debts

No matter how high your income is, lenders will want to see a low debt-to-income ratio (DTI). Most want under 40 percent, which means you spend less than $40 out of every $100 on debts like credit cards, auto loans and mortgages. To qualify for the best rates, you will need to have a low DTI.

How to boost your credit score before applying

Not only should you regularly check your credit score and stay on top of your credit history report, you can also take steps to improve your score by spending less, paying on time and avoiding new accounts until you need them.

  • Decrease your credit utilization ratio. Paying down your debts will lower your credit utilization — the amount of credit you have access to versus the amount of credit you are currently using.
  • Focus on on-time payments. Late payments will lower your credit score and hurt your chances of qualifying for future loans. Make sure you budget effectively and use an autopay system to help stay on top of payments.
  • Avoid new accounts. If you can, hold off on applying for credit cards and other loans. While many lenders allow you to check your potential rates with only a soft check, a hard check will be done when you submit an application — and it will lower your score.

Find the best rate available before you borrow

Before you apply, check your credit score to see what you qualify for. There are lenders that work with every credit profile, but to get the best rates available to you, you will need to know where to submit an application.

Then compare rates from top lenders. Your credit score is important — but it’s not the only thing lenders consider. Research the other requirements and documents you will need to give yourself the best chance of being approved for a personal loan.