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What is the Minimum Credit Score for a Personal Loan?

Find out the minimum credit score for a personal loan and how to avoid bad credit.

27 November 2021Lloyd Smith 5 min read
What is the minimum credit score for a personal loan?

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When the thought of personal loans comes to mind, so does credit score. In this article, we look into bad credit scores, how they impact chances of applying for a personal loan and the steps you can take to improve yours.

So you’re considering applying for a personal loan, but are you worried about bad credit history potentially hindering your chances of successfully applying for one? Well, don’t be.

Whilst it’s true that having a bad credit score can affect your chances of accessing a personal loan, and often make it harder to receive approval, it’s not impossible. Several lenders will consider applications even if you have a bad credit history. The key is to do your research. Either way, having a poor credit score is never a good idea.

Before we go any further and uncover the minimum credit score requirements for a personal loan and how you can find out what yours is, you need to understand what a personal loan is and what bad credit history means.

What is a personal loan?

You may already be clued up about personal loans, but if this is new to you, it’s essential to know what it is to understand why bad credit history can hinder your chances of getting one.

So, let’s answer this all-important question. A personal loan is an amount of money lent to you by a bank or other financial lender. The loan amount is given to you in one lump sum, which you must pay back in monthly instalments over the agreed period. For instance, think of it as borrowing money from a friend. When borrowing, as expected, you will agree to pay it back over time.

A friend is more likely to lend you money knowing that they can trust you will pay it back. The same goes for financial institutions and lenders. This is where credit score comes into play.

What it means to have a bad credit score

Simply put, having a bad credit score means having a negative payment/credit history. This can include

  • Missing monthly repayments
  • Paying monthly repayments late
  • Defaulting on payments
  • Entering debt agreements
  • Declaring bankruptcy
  • Frequent credit enquiries

Typically, a credit score of less than 550 is considered poor and can reduce your chances of receiving personal loans and many other types of loans. You may, however, notice that this number may vary between credit reporting bureaus in Australia. For instance, for Equifax, this score is below 505. Experian, on the other hand, reflects a poor credit score as anything below 549. Whilst Illion states anything below 299 as low. Here at ClearScore, we use Experian’s credit score range.

Steps to improve your credit score

To every problem, there is always a solution. The same goes for a bad credit score. How you may ask? It’s simple. Improving your credit score comes from consistently managing your finances well every month. It’s not rocket science. You can do this by implementing the following steps:

  • Always pay your bills on time - a missed payment can negatively impact your credit score. If this does happen, try to make the payment within the 14-day grace period. Remember, missing the occasional payment won’t throw you into the naughty box. But don’t make a habit of it.
  • Avoid negative entries - defaults and bankruptcies can remain on your credit history for five years. But this is fixable. If you've been missing payments, it’s time to start repaying those debts to improve your credit history.
  • Don’t apply for a lot of credit - too many credit applications can negatively impact your credit score and raise a few eyebrows. So, it's best to keep this at a minimum and avoid making too many credit applications in a short period.
  • Watch out for fraud - fraudulent activity is something that unfortunately happens quite often. Therefore, you need to keep an eye on your credit report regularly so you can pick up on any suspicious activity. By doing so, you’ll save yourself from not only a damaged credit score but also having to pay for someone else's actions.
  • Keep a regular eye on your finances - not only is it good to keep an eye on your finances to pick up suspicious activity, but it will help you manage your money better.

So, as we’ve discovered, a bad credit score can vary from one data provider to another. Typically, it’s safe to say a credit score rating above a minimum of 550 will help you qualify for a personal loan. However, in saying that, there will be lenders who will require a much higher credit score and others who will ask for much less. For example, according to Forbes advisor, the recommended minimum credit score to qualify for a personal loan is 670.

To make it easier for you to understand, here’s a quick table of Experian’s credit score bands which we use at ClearScore.

Credit score

Experian band

0-549

Below average and likely considered to be a poor credit rating.

550-624

Fair, but could be better.

625-699

This is good and considered an average score.

700-799

If you’re sitting here you’re in a very good position and above the average score.

800-1000

This is seen as an excellent score and way above the average.

When it comes to credit score ratings, the higher, the better. We strongly advise you to carefully do your research and seek advice from professionals to determine what will be best for your circumstances.

How is a credit score calculated?

If you’re wondering how credit reporting bodies calculate your credit score, here is a quick overview of the key factors taken into consideration:

  • The number of accounts you have
  • Your payment history
  • Your used credit vs your available credit
  • The length of your credit history
  • Your payment history

Depending on the scoring model used by the credit bureau, the weight of each of these factors may vary.

Finding out your credit score rating is quick, simple, and it’s free. You can access this information through a number of credit reporting bodies. In Australia, the three main credit reporting bodies are Equifax, Experian and Illion. Alternatively, you can check your credit score with ClearScore.

To access your credit score, you will need to confirm personal information, such as:

  • Name
  • Date of Birth
  • Contact address
  • Driver’s licence number

Once you enter the relevant information, and all is good, you should have access to your credit score within a matter of minutes.

An average credit score is seen as a fairly healthy score and sits somewhere between 500-699. If we go by Experian’s scoring, which is what we use at ClearScore, the average credit score is anywhere between 625-699, as reflected in the table earlier.

When it comes to answering the all-important question of what is a good credit score in Australia? If we go by Experian’s scoring, we could say that the above-average score of anywhere between 625-699 reflects a good credit score in Australia. However, considering the fact that each of the three reporting bodies in Australia has different methods and scoring, it can be deemed as misleading to rely on the numbers from one bureau.

Whether you’re applying for a personal loan or not, having a good or otherwise excellent credit score is essential. To ensure you keep on top of your financial actions, ClearScore offers Free credit reporting and scoring.


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Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.