If you have fair credit, getting a personal loan will be a bit more difficult for you than those who have good credit.
This is because personal loans don’t require collateral, so the lender relies solely on your financial reputation as an indicator of whether you will pay back the loan. Part of that financial reputation is your credit scores, and a fair credit score isn’t as promising as a good one. Lenders also consider your ability to repay by looking at your income and debt level.
Fair credit lands between bad credit and good credit; it’s average. Among the credit score ranges used by VantageScore and FICO, that usually is in the low- to mid-600s. If you don’t know what your credit looks like, free credit scores are widely available. Take a look at your free credit reports — the credit record that is used to calculate your scores — as well, because any lender you apply with certainly will.
Credit scores are somewhat volatile; depending on which bureau is calculating the score and for what purpose, your score might vary quite a bit. If you are teetering between fair and good or between bad and fair, an effort to clean up your credit report might pay off. Typically that means paying down credit cards down to less than 30% of your available credit, paying all bills on time and removing inaccurate negative items from your credit report.
If your FICO score or VantageScore is between 630 and 690, you’ve got average, or fair, credit.
There are many institutions where you can get a personal loan. Banks, credit unions, peer-to-peer lenders and online alternative lenders are just a few. Your best best is likely to be your local credit union. If you have a long-standing relationship with your credit union, they are likely to give you low interest rates and favorable terms even if you have fair credit.
See “Where to Get a Personal Loan” for an idea of what to expect from each type of lender. Reputable online lenders — ones that check your credit, consider your ability to repay a loan and report positive payment histories to the major credit-reporting agencies — typically cap their rates at 36% APR. You may find lenders willing to give you a loan without checking your credit at all; expect to pay a much higher rate.
You can get a good idea of which online lenders specialize in your credit tier by visiting NerdWallet’s personal loans marketplace, which specifies credit score ranges for each lender. Some lenders don’t have a minimum credit score, but they do consider it with many other types of personal information. A high income or lengthy credit history might help qualify you for loans that another person with a similar score might not be offered. A low debt-to-income ratio may help someone with a marginal credit history get approved for a loan; a high debt ratio may keep someone with an average credit score from finding a loan that otherwise appears to be a good fit.
We suggest you apply with at least three lenders; initial screening is done through a soft credit check, which does not affect your score. Look for lenders whose minimums are 20 to 30 points below your own credit score. Underwriting standards are very different from lender to lender; one may approve your loan even as another with the same information rejects it.
There are other options besides traditional unsecured personal loans. Depending on how quickly you will pay back the funds and how much you need, you can also try secured loans, which typically have lower rates than an unsecured personal loan because you pledge your car or other asset as collateral. You might also consider asking someone with good credit to co-sign your personal loan. Make sure you ask someone whom you trust — and who trusts you — because both your credit histories will be on the line.
After you pick where you want to apply for a personal loan, gather the necessary paperwork. See “How to Get A Personal Loan” for tips on what you need to apply.
Personal loans come with all sorts of risks that you need to watch out for, especially because they could negatively affect your finances and your credit. Some lenders may charge you a prepayment penalty or exit fee for paying off your loan early to recoup the profits lost on the interest. Plenty of lenders don’t charge those. Ask.
Think hard about why you’re getting a loan: In general, NerdWallet doesn’t recommend them unless they are part of a plan to reduce or eliminate your debts.
Lastly, if you take out a personal loan, avoid scams. Check the lender’s legitimacy with the Federal Trade Commission and Better Business Bureau before applying. If you have a bad experience with a lender and cannot resolve it with the company directly, you can try submitting a complaint to the Consumer Financial Protection Bureau.