What Credit Score is Needed for an Online Loan

online loans and credit score

When seeking an online loan, lenders will often check your credit score, but this isn’t always the case and can depend on the type of loan you are applying for. Your credit score is a way for lenders to determine what they call creditworthiness. It helps them evaluate what level of risk you might be as a borrower, how likely you are to make your payments, and whether you might repay the loan in full. The average credit score of Canadians is around 650, which is considered fair by most lenders. In Canada a credit score range is from 300 to 900.

Average Credit Score By Canadian City


While a credit score is a big consideration by lenders for what is needed to get approved for a loan, most lenders also look at your overall debt to income ratio (DTI) too. By looking at your income, overall bills and outstanding debt, they are able to determine with some accuracy how likely you would be to make the necessary payments and repay a loan if approved. While your DTI is not part of your credit score, it is an important in evaluating a loan request to consider the level of risk an applicant can be.

If you have had trouble being approved for loans in the past, improving your credit score is always helpful, but you can also reduce your overall debt to improve your odds. Many lenders prefer to see a DTI ratio of less than 28% for an unsecured loan, but every lender has their own requirements. To determine your own DTI you would divide your total monthly debt payments by your gross monthly income and then multiply the answer by 100. Your monthly debt payments would be expenses like rent/mortgage, credit card bills, outstanding loans and similar financial commitments.

The typical range and rates for credit scores in Canada can look like this:

Credit ScoreRatingSample interest rate
300 – 559Very Poor18% to 47%
560 – 659Poor15% to 35%
660 – 724Fair5% to 20%
725 – 759Good5% to 15%
760 – 900Excellent2% to 12%

Note that the above are estimates and do not reflect actual rates offered.

It’s worth noting that you should be aware of your credit score before applying so that you are aware of what you might be eligible for. Also, if it isn’t an urgent expense and your score is close to the next level, it can be worth your while to focus on improving it since it might save you a lots in interest if you are able to increase it to a rating of good from fair, which would save you in interest and overall cost of the loan.

Credit Score for Personal Loans

When applying for personal loans your credit score should be at least 650 for you to qualify. Requirements for being eligible for personal loans will vary from lender to lender. There are some criteria that’s usually the same from one lender to the next, such as being of a certain age and resident or citizen.

With most banks, in addition to the above, they might expect you have not declared bankruptcy in the last several years, or have not been declined credit within the last few months. With online lenders some of those requirements might include proof of monthly income for at least the past 3 months, a minimum credit score (which will vary by lender) along with a minimum income and current debts must total less than a certain percentage of your income. 

Proper identification, proof of income and a positive credit history are often also expected in order to be eligible and possibly approved for a personal loan. But not everyone might qualify, and a poor credit history is often the reason. For those in this situation there are alternative borrowing options like installment loans and payday loans to consider. 

Some wonder whether you should try to improve your credit score before applying for personal loans as it might provide you better rates. This really depends on what your current score is and how close you might be to a range where you could qualify for better rates, and how quickly you might need the loan. 

There are also direct lenders promising guaranteed approval for bad credit personal loans online but these are nothing more than high interest installment loans making claims to be personal loans.

RELATED: Personal Loans – Short vs Long Terms

Credit Score for Installment Loans

Most personal loans require a higher credit score, and for those that don’t qualify an installment loan can be an option when your credit score is fair or poor. An installment loan is very similar to a personal loan, with the main difference being higher interest rates.

For installment loans the interest rates can be anywhere from 20% to 60% APR and sometimes higher. The lender determines the rate based on the level of risk they consider you as a borrower. While the interest rates for installment loans can be high, if options are limited, they are definitely a way to get fast funds when the bank has passed on your application and you are in need of a loan for an emergency or unexpected expenses. 

Most installment loans are regularly scheduled monthly payments based on the amount borrowed plus fees and interest that may take a few months to a few years to repay.

RELATED: What to Know When Applying for Online Loans

Credit Score for Payday Loans

When other options like personal loans or installment loans are unavailable, you can usually rely on being able to qualify for a payday loan. Most payday lenders won’t look at your credit score because they are aware that you probably have poor credit and others have turned you away. But there are a number of things lenders look for and depend on the type of loan you apply for.

Payday loan lenders will often use alternative data from multiple sources to make decisions about your application. Having a regular income is definitely one factor, but when it comes to payday loans it doesn’t always require employment. Some lenders will consider other incomes so long as they are regular, such as benefits like odsp or similar. Be sure to learn about loan scams and how to find legitimate lenders when considering to get a loan online.

What is a Good Credit Score

According to the credit bureau Equifax a credit score of 660 or better is considered good and usually makes you eligible for personal loan. When considering a loan, it’s usually a good idea to start with knowing what your credit score is, and what interest rates you might qualify for. 

This makes comparison shopping much easier, which is an option when your credit score is good or better. When your credit score is only fair or poor, your options are limited to installment loans or payday loans and the higher interest rates are usually similar among lenders. But you will find there are usually options for loans with bad credit to be found at the same time.

What About Bad Credit?

Depending on the rates you qualify for, using loans to get out of debt faster are a smart money move when the amount you borrow has a lower interest rate than your current debt and can help you save. But this also depends on where there might be additional fees involved and the rates you currently have as to whether it is in your best interest. 

RELATED: How to Avoid High Interest Loans

If you have bad credit a high interest loan might be one of the few options available. If your loan needs are not urgent, trying to improve your credit score so you might be eligible for better rates is always advised.

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