You may be wondering what is a good credit score? What’s a bad credit score? And of course, how does this affect the interest rates that I pay on my personal loans? These are all great questions, and it can be tricky to find the answers to them.
Not only do you need to know whether your credit score falls into an optimal range, but you also need to understand how that score can influence the interest rate that you receive on your loans.
What Is A Good Score?
First, let’s determine what makes a good credit score. As a general rule of thumb, a good credit score is anything that is above 670. This number is typically considered to be a suitable score for nearly any application. When you apply for a loan, this score, along with your age, credit history, and the purpose of the loan, are all used to determine the terms of your loan.
While a good credit score will help you pass through certain application filters, it is essential to note that other things, such as the length of your history, can impact how you are considered for loans. Using apps to track and manage your score can help you better understand what determines your overall score and how you can improve your credit score if it is low.
How Your Score Affects Your Personal Loan Rate
Personal loans are used for many different reasons, such as paying for a large-scale purchase or being used to cover emergencies and unforeseen circumstances. Your credit score can impact your personal loan terms, including the interest that accrues while you pay back the loan.
The average rate on a two-year loan in August 2020 was 9.34%. The amount that you pay for your loan depends heavily on your credit score and can range anywhere from near 10% to 20% for a personal loan. The average rate paid per credit score is demonstrated in the table below.
| CREDIT LEVEL | CREDIT SCORE | RANGE AVERAGE | PERSONAL LOAN | INTEREST RATE |
|---|---|---|---|---|
| Excellent Credit | 720 | 850 | 10.3% | 12.5% |
| Good Credit | 690 | 719 | 13.5% | 15.9% |
| Average Credit | 630 | 689 | 17.8% | 19.9% |
| Bad Credit | 300 | 629 | 28.5% | 32.0% |
What Else Affects My Interest Rate?
In conjunction with your credit score, other factors can significantly impact your interest rate. For example, the state than you live in can affect your rate by more than five percentage points. To get the idea, the average interest rate in Hawaii is 7.07%, while the average rate in West Virginia is 11.39%. The institution from which you receive your loan can impact your interest rate, too.
Traditional banks have a higher interest rate than credit unions, on average. This is why it is important to shop around before committing to a loan. The interest that you pay dramatically impacts the total cost of the loan. Several online alternative lenders can offer even more affordable rates, on equal credit score. Considering our reviewed top lenders will be of great help to find the best personal loan conditions for your credit score.
