What credit score is needed for a personal loan?

Your credit score is one of the most important factors in a personal loan application. Lenders often won’t consider you if you don’t meet their minimum credit score requirement. However, it’s only one of several factors they look at when determining your eligibility. Learn more below about what credit score is needed for a personal loan in Canada.

What credit score do I need to get approved for a personal loan?

Minimum credit score for personal loans varies from lender to lender. Major financial institutions like banks and credit unions will want to see good to excellent credit (above 660), while online lenders can approve personal loans even if you have fair credit (560 to 659) or bad credit (below 560).

Compare personal loans for different credit scores

What credit score do I need to get a good rate on a personal loan?

You would need to have excellent credit to get the lowest rates and largest loan amounts that a personal loan lender offers. However, you can often get a favourable deal even if your credit score is considered good.

Here is a breakdown of typical credit score ranges in Canada.

• Excellent credit: 760 to 900
• Very good credit: 725 to 759
• Good credit: 660 to 724
• Fair credit: 560 to 659
• Poor credit: 300 to 560

How to get a low interest loan

What else is needed for personal loan?

Although credit score plays a key role in whether or not you’ll get approved for a personal loan and how high or low your interest rate will be, it is just one of several factors that lenders examine. For example, you could have a decent credit score, but if the level of your monthly debt payments relative to your monthly income is high, lenders may hesitate to approve you.

Below are some important factors that lenders look at.

• Income. Many lenders have minimum income requirements. Generally, the larger the loan you’re applying for, the larger the income you’ll need to qualify.
• Employment. Personal loan providers often require borrowers to have a full-time job. You might have trouble finding a loan if you’re self-employed or if you’re not working, though there are options for unemployment loans and self-employed personal loans.
• Credit history. In addition to your credit score, many lenders look at the length of your credit history. If it’s still relatively new — say, less than three years old — you might have trouble qualifying.
• Debt-to-income (DTI) ratio. Your DTI ratio compares your monthly bills to your monthly income and gives lenders an idea of how much money you can afford to repay each month.
• Loan amount. The size of the loan matters. For example, if you have bad credit, lenders are more likely to approve you for a $5,000 personal loan than a $20,000 personal loan.
• Collateral. Offering collateral such as your home reduces risk for the lender, because if you fail to make repayments, the lender can repossess your asset. Since you’re reducing risk, the lender can offer a lower rate.

How do I check my credit score?

Understanding what credit score is needed for a personal loan won’t help you know if you’re eligible unless you know your credit score. You can check your credit score using one of the following methods or services.

The score you receive is usually based on a soft credit inquiry, which doesn’t affect your credit rating but may not be as accurate as a hard credit pull. When lenders evaluate a loan application, they’ll do a hard pull on your credit, which will temporarily decrease your credit score.

• Online services. Sites like Credit Verify (powered by TransUnion) allow anyone to check their credit score by filling out a quick online form with basic personal information like your name, birth date and address.
• Budgeting apps. Many apps like Mint regularly check and update your credit score once you sign up.
• Credit card or bank apps. If you have an app for your bank or credit card, you can often sign up to check your credit score and get alerts when it changes.
• Account statements. Your credit score might appear on some statements for loans, checking accounts or other financial products.
• Credit bureaus. You can also go directly to the source and check your credit score with the two major credit bureaus in Canada: TransUnion and Equifax.

How can I improve my credit rating before applying for a personal loan?

There are several steps you can take to potentially qualify for better rates by improving your credit score before you apply for a personal loan:

• Check your credit report. You’re entitled to two free copies of your credit report each year — one from each bureau. Request a copy and make sure it’s accurate. Reach out to your creditors if you find any mistakes on your credit report.
• Pay down your balances. Got a lot of credit card debt? Loans? Paying off some of your balances lowers your credit utilization ratio and can improve your credit score.
• Take out a credit-builder loan. Some local banks, credit unions and other financial institutions offer inexpensive small-dollar loans designed to help you improve your credit and establish a rainy day fund. Learn more about credit-builder loans.

Can I get a personal loan with no credit score?

You can, though your options are much more limited. You might be able to qualify if you apply for the loan with a cosigner. Or consider borrowing from friends and family.

What can I use my personal loan for?

Lenders don’t usually put restrictions on how you can use your personal loan funds. That flexibility is one of the reasons why a personal loan is such an appealing financing option. That being said, some lenders may not be willing to lend you money for certain use cases.

Our research found that 41.3% of Canadians took out personal loans to buy a car, 19.5% to finance a mortgage, 15.8% to consolidate debt and 13.2% to finance home renovations. Here are some common ways people tend to use personal loans:

Overall representative example
If you borrowed $20,000 over a 5-year term at 9.50% APR (variable), you would make 60 monthly payments of $420.04 and pay $25,202.23 overall, which includes interest of $5,202.23. The overall cost for comparison is 9.50% APR representative.

Bottom line

You can get a personal loan with almost any credit score — or even no credit score. But you have more options if you have good to excellent credit. If you aren’t in a rush, consider taking the time to improve your credit rating so you can get an even more favorable deal.

Want to know more about how it all works? Check out our guide to personal loans.

Frequently asked questions about credit scores for personal loans

• Can a personal loan hurt my credit?

  Yes. When you apply for a personal loan, it temporarily hurts your credit score when a lender runs a hard credit check. However, it can improve your credit score if you make your repayments on time. If you’re late on repayments, it’ll damage your credit score.

• Is it worth it to get a personal loan to pay off debt?

  It could be. In fact, consolidating your debt with a personal loan could improve your credit score if you need help managing your repayments. It could also give you more competitive rates and terms, especially if you have credit card debt.

  But it’s not always the right choice for everyone. Learn more about your options with our guide to debt consolidation.

• What's the best reason to give when applying for a personal loan?

  The best reason is the truth. If a lender finds out you’re lying on your application, you’ll likely be denied. Some providers might restrict how you can use your funds. For example, you may not be allowed to take out a personal loan to pay for school or use personal financing to fund your business. In those cases, look for a lender that has fewer restrictions on how you use your personal loan.