What is the Minimum Credit Score Needed for a Bank Loan?

Your credit score is one of the most important factors lenders consider when reviewing applications for bank loans. In general the higher your credit score the more likely you are to qualify for a loan and get better terms like a lower interest rate.

What is the lowest credit score you need to get a bank loan? The exact score varies by lender, but many banks will turn down applicants with scores below 620. Some lenders will give loans to people with credit scores as low as 580, but you’ll probably have to pay more in fees and interest. People whose credit score is 720 or higher have the best chance of getting a loan and getting the best terms.

How Credit Scores Work

Before diving into minimum requirements, it helps to understand what credit scores represent and how they’re calculated.

Credit scores range from 300 to 850 and are based on information in your credit reports from the three major credit bureaus – Equifax, Experian, and TransUnion Higher scores indicate a lower credit risk

The most commonly used credit score model is FICO, developed by the Fair Isaac Corporation. FICO scores take into account five factors:

• Payment history (35% of score): Whether you pay bills on time
• Credit utilization (30%): The amount of available credit you’re using
• Length of credit history (15%): How long you’ve had credit accounts
• Credit mix (10%): The variety of credit types you have (credit cards, loans, etc.)
• New credit (10%): How many new accounts you have and how recently they were opened

VantageScore is another scoring model used by some lenders. The score ranges and factors are similar, though the weightings differ slightly.

Typical Minimum Scores for Bank Loans

Most banks publish general credit score requirements, but actual minimum scores may vary case-by-case based on your entire credit profile and finances.

Here are typical minimum FICO scores needed for common bank loan types:

• Mortgages – 620 minimum for conventional loans, 580 for FHA loans
• Auto loans – 620 for new cars, 580 for used cars
• Personal loans – 620 minimum, though 640+ may get better rates
• Student loans – No minimum, but 650+ scores get better rates
• Business loans – 650 minimum for SBA-backed loans
• HELOCs – 680 minimum for most lenders

As you can see, a credit score of 620 or higher meets many banks’ baseline requirements for loans. But aiming for a score in the good to excellent range (680+) is ideal for qualifying and securing favorable interest rates.

People whose credit score is less than 580 will probably have a hard time getting subprime loans or will have to pay very high interest rates. You may have more options if you improve your score before applying for a bank loan.

Factors Beyond Your Credit Score

While your credit score is important, lenders also consider other information when reviewing loan applications:

• Income – Your earnings need to be sufficient to afford loan payments.
• Debt-to-income ratio – Total monthly debt payments divided by gross monthly income. Most want to see this below 50%.
• Down payment (if required) – Larger down payments lower risk for lenders.
• Employment history – Steady income sources are best.

Strong credit scores don’t guarantee approval if these other factors don’t meet requirements. On the flip side, weaker credit scores may be approved with very good income, low debts, and large down payments.

But when you’re looking for a loan, it helps to have both a good credit score and good money.

How to Check Your Credit Score

Since your credit score plays a big role in loan eligibility, it’s wise to check your score a few months before applying. Here are some options:

• Request free reports from AnnualCreditReport.com – includes your score from Experian.
• Check scores through your credit card issuers if they offer this benefit.
• Use a site like CreditKarma to view VantageScores for free.
• Purchase FICO scores directly from MyFICO.com or through a credit monitoring service.

Checking reports also lets you spot and dispute any errors that may be dragging down your score.

Improving Your Credit Score

If your credit score falls below typical minimums for bank loans, take steps to boost it before applying:

• Pay all bills on time – Set up reminders if needed.
• Lower credit utilization – Keep balances below 30% of limits.
• Pay down debts – Especially those in collections.
• Limit hard inquiries – Too many credit checks hurt scores.
• Monitor credit reports – Dispute any errors found.
• Become an authorized user – To benefit from others’ good credit history.

With diligent credit management over 6 months or more, it’s possible to increase scores by 50 points or more.

Alternatives If Your Credit Score is Too Low

People whose credit scores are less than 500 might have a hard time getting loans from big banks. In that case, here are some possible alternatives to explore:

• Federal loans – Government student and mortgage loans consider other factors beyond your credit score.
• Subprime lenders – Specialize in lending to borrowers with bad credit, but charge higher rates.
• Secured loans – Can require collateral like a car title to offset credit risk.
• Co-signers – Adding someone with better credit can help you qualify and get lower rates.
• Credit-builder loans – Require upfront payments into a savings account to prove you can make payments.
• Community banks – More likely than big banks to review your overall financial profile.

The key is avoiding predatory lenders that charge excessively high interest rates and fees. Do your research to find reputable alternative lenders willing to work with bad credit borrowers.

The Takeaway

To recap, the typical minimum credit score for approval on most bank loans is around 620, though requirements vary by lender. Excellent credit scores of 720+ are ideal for qualifying for the best rates and terms.

If your score is below the minimum threshold, take steps to boost it before applying for a loan. Also explore specialized lenders that offer bad credit loans if you need funds sooner. With time and diligent credit management, you can raise your score high enough to meet conventional banks’ requirements.