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If you have excellent credit — meaning a credit score above 800 — you can expect lower interest rates, longer terms, and more loan amount options on your personal loan. Lending to borrowers with good credit increased 20% through the end of 2023. This increase has continued into the first half of 2024, which may be a sign that lenders are looking for high-quality credit for personal loans.
For borrowers with good credit who qualify for a personal loan, the interest rate can be the same as or even lower than the mortgage rate.
What are personal loans for people with good credit?
A good credit personal loan is an unsecured installment loan designed for borrowers with a credit score above 800. If your credit score is within this range, you can usually borrow more, pay back over a longer period, and at a lower cost than borrowers with good or fair credit.
Borrowers with good credit may be more likely to use the funds for major expenses such as home renovations, weddings or business inventory needs.
A good credit score range means you have a track record of always making on-time payments, using credit cards sparingly, and managing various types of credit, including installment debt like car loans and revolving credit card debt. Lenders know you’re likely to pay back your debts, and they’ll reward your credit management skills by offering you more money at lower interest rates than the average personal loan rate.
Benefits of loans for people with good credit
The first benefit of having a good credit score is that lenders will compete to get your borrowing business. Because lenders know that you have a very high probability of paying back as agreed, they are more likely to offer you better terms for larger loans. This usually means lower interest rates, low or no fees, and longer repayment schedules.
Low Fees
Having excellent credit means you can usually get a personal loan interest rate of just under 6 percent from the most competitive lenders. Depending on the repayment term you choose and the amount you borrow, your interest rate may be higher.
The average annual percentage rate (APR) for personal loans for individuals with excellent credit ratings ranges from 10.30 percent to 12.50 percent, which is about one-third of the average interest rate of 32 percent for personal loans with poor credit ratings.
Estimated APR by FICO Credit Score Range
| category | Credit score | Percentage of people in this category | Estimated APR |
|---|---|---|---|
| wonderful | 800-850 | twenty one% | 10.30%-12.50% |
| Very good | 740-799 | twenty five% | 10.30%-12.50% |
| good | 670-739 | twenty one% | 13.50%-15.50% |
| impartial | 580-669 | 17% | 17.80%-19.90% |
| Very poor | 300-579 | 16% | 28.50%-32.00% |
Source: Experian, Bankrate
Increase in loan amount
If you have good credit, you may be able to borrow more than $100,000, a significantly higher borrowing power than the $50,000 limit offered by most lenders with fair or poor credit.
You’ll still need to qualify for higher payments based on your income, and given that it’s for up to seven years, the payments can be high, so make sure they fit your budget.
Good credit loans for home renovations
If you’re planning on renovating your home, taking out a personal loan for home renovations could be a better option than a mortgage, for three reasons.
- Interest rates can be the same or lower than mortgage ratesYou’re right. Although mortgage rates have fallen from multi-year highs, it may be worth doing some more math on home improvement loan rates.
- It doesn’t tie up your equity in your home or add a new lien to your homeThis means more money in your pocket if you plan on selling in the near future.
- Easy approval processHome loans require additional steps to prove your ability to repay, such as verifying the value of your home. Home improvement personal loans do not require you to verify the value of your home.
Long-term
With a good credit score, you’re more likely to extend your loan term beyond the maximum five years that most personal loan lenders offer. If you want lower monthly payments for a higher loan amount, contact lenders with good credit scores to see if they offer loan terms longer than five years.
Easier and faster approvals
A high credit score makes it easier for lenders to approve your loan because you’ve already proven that you’re a responsible credit user. In some cases, you might even be able to receive your loan funds the same day you apply.
How to improve your credit score and qualify for a good loan
If you’re not yet in the excellent credit score range, there are some steps you can take to improve your credit.
- Always pay everything on time. Your payment history has the biggest impact on your credit score, so set up autopayments and keep your accounts to a minimum to avoid missing payments.
- Keep your credit balances low or pay them off. Carrying too many balances on your credit cards will lower your credit score. Your credit utilization ratio should be below 30 percent. That means for every $10,000 of available credit, you shouldn’t be charging more than $3,000 at one time. Along with your payment history, this factor has a big impact on how high your credit score is.
- Don’t open too many accounts at once. Each time you apply for credit, your score may drop slightly. Applying for several different credit accounts at the same time can cause your score to drop rapidly because the credit scoring system thinks you’re getting a lot of new credit. Only apply for credit when you need it, and avoid opening new accounts for small discounts at retailers and online vendors.
- Check your credit report for errors. If your score is lower than expected, check your credit report for errors. Contact the credit reporting agencies to dispute any errors and have them removed.
- Keep your credit cards open. Unless you have a specific reason to do so, keep your credit cards open. Closing a credit card will lower the average age of your credit accounts, which can affect your score.
Conclusion
A good credit score gives you access to a wide range of personal loan borrowing options. Whether you’re financing a major home renovation or funding the start-up of a new business, a good credit history gives you more options for repayment terms and loan amounts.
