If you’re hoping to borrow money, you might be wondering what credit score you need for a personal loan.
Getting your application approved can seem overwhelming, especially if your credit history isn’t perfect.
Thankfully, there are plenty of specialist lenders out there who are willing to work with people who’ve struggled with debt in the past.
With some smart money management and a bit of debt admin, it’s possible to improve your credit score over time. This should make it easier to access the loans you need.
Read on to learn more about building your credit score for a personal loan.
It may come as a surprise to hear this, but there is no universal number that will make lenders say yes. Different lenders have different criteria.
Some lenders prioritise borrowers with good or excellent credit scores, while others are willing to lend to those with bad credit.
To make matters even more complicated, there are three main credit referencing agencies in the UK and each one scores people differently. So while you might be given a certain credit score with one agency, another might give you a completely different number.
It’s a good idea to look at your credit report as a whole and focus on how healthy your financial behaviour is, rather than obsessing over the numbers.
A high credit score doesn’t guarantee that your loan application will be accepted. This is because lenders usually have other criteria that they take into account before approving an application.
The better your score, the more choices you should have. With a higher score you should have access to a wider range of loans. They might also have better interest rates than those available to people with bad credit.
Some people assume they need a good credit score for a personal loan, but this isn’t necessarily true.
Having a good credit score can certainly help, but there are specialist lenders who are willing to work with people who have struggled with debt in the past. Some lenders will also approve loans for those with a non-existent credit history.
Some options will help you build your credit score while you borrow, meaning you can access the money you need while also improving your chances of borrowing in future too.
However, some people with a very low credit score might struggle to access a personal loan that’s affordable and easy to manage.
If you’ve got bad credit, you might not be able to borrow as much money and the loan might be more expensive.
It can be a good idea to compare a number of personal loans before applying.
When you use comparison tools, you may need to answer a few questions so that a ‘soft search’ can be carried out. This won’t leave a mark visible to lenders on your credit report.
Applying for several loans in a short space of time can damage your score, especially if you get rejected. One rejection can lead to another, so it’s wise to do some research before taking the leap.
Once you’ve made a decision, it’s time to make that application. If your application is approved, you’ll receive your money. The amount of time this will take will depend on the lender you’ve chosen.
Before applying for your personal loan, it may be a good idea to try and improve your score.
This can boost your chances of getting approved and give you access to more deals. You might also save money on interest.
Improving your credit rating can take a while but here are a few things to try:
This may come as a surprise but did you know that registering to vote can improve your credit score? When you register to vote, your electoral details are recorded on your report. This makes it easier for potential lenders to confirm your personal information.
Your time on the electoral roll is an important factor and the longer you’re registered to vote at a particular address, the better this can be for your credit report. Lenders like to see stability. Moving several times in a short period may raise concern among lenders. They might assume you’re struggling with your rent and this could influence their decision.
If you’re living in temporary accommodation such as student halls or military barracks, it may be better to register at a permanent address such as your parents’ house. Not only can this maintain some stability on your credit report, it can reduce the risk of identity theft too.
If you already have a credit card or several, you might be tempted to only pay the minimum and delay payments for a later date. But carrying a balance on your credit cards can affect your credit score and make your debt harder to manage over time.
If you’re able to pay your credit cards in full, this can show lenders that you’re a sensible borrower.
Have you ever had a joint bank account or joint mortgage with an ex partner? If so, their financial behaviour could affect yours. Write to the credit reference agencies and ask for what’s known as a ‘notice of disassociation’. By filling in this form, you can unlink your credit history from your ex partner.
Your credit score is just one piece of the puzzle. Lenders might also look at the following before approving your application.
There’s far more to your credit report than just your score. Some lenders will dig a little deeper to assess your credit history. Some will want to see that you’ve got a proven track record of borrowing and repaying money over two or more years. Others will look at the different types of credit you’ve had in the past. They’ll use that to work out what type of borrower you are. Some types of credit may be looked at more favourably than others.
Lenders usually want to see that their borrowers make enough money to pay their existing expenses and future loan repayments. They’ll look for a good debt to income ratio, so they can be confident in your ability to pay them back.
While your debt to income ratio gives lenders an insight into how easily you can manage your payments, cash flow takes things a step further.
Lenders might look at your bank statements to assess your cash flow. Basically, they’re trying to find out how much of your income you tend to spend each month and what you spend it on.
If your statements show a large number of gambling transactions, this could raise a red flag. The occasional weekend bet or lottery ticket is unlikely to cause any alarm bells though.
There are a number of things to consider before taking out a loan, especially if you’ve struggled to manage your debts in the past.
Before applying, consider how affordable the repayments will be and whether you’ll be able to handle them on top of your current expenses. Have a think about what your next steps will be if you can’t pay back your personal loan.
It may be worth focusing on your credit score first before submitting an application.
It might also be a good idea to look into credit building services to see if you can access the money you need without having to worry about interest.