What is a Good Credit Score to Apply for a Loan: Guide to Better Rates

The Benchmark: What is a Good Credit Score for Each Loan Type?

The definition of “good” shifts based on the collateral and risk associated with the loan.

1. Good Credit Score for a Mortgage Loan (Home Purchase)

Mortgages are secured loans, meaning the property itself acts as collateral. This makes lenders slightly more lenient than with unsecured loans.

• Good (Recommended): 670 and above. Scores in this range qualify for conventional mortgages and competitive rates.

• Very Good/Exceptional (Best Rates): 740 and above. Borrowers in this tier receive the lowest available interest rates, saving tens of thousands of dollars over the life of the loan.

• FHA Loans (Alternative): Government-backed FHA loans may allow scores as low as 580, but these come with mandatory mortgage insurance premiums.

2. Good Credit Score for an Auto Loan (Car Purchase)

Auto loans are also secured, with the car as collateral. Lenders often look at the risk profile compared to the loan amount.

• Good (Recommended): 660 and above. Borrowers in this range qualify for average or better rates.

• Very Good/Exceptional (Best Rates): 700 and above. This is the tier where you lock in the lowest promotional rates offered by dealerships and banks.

3. Good Credit Score for a Personal Loan (Unsecured)

Personal loans are typically unsecured, meaning no collateral secures the loan. Because the risk is higher for the lender, the credit score requirements are stricter.

• Good (Recommended): 670 to 700. Most mainstream lenders prefer borrowers to be in this range or higher for general personal loans.

• Fair/Below 670: While some online lenders or credit unions may approve loans in the 600-669 range, the interest rate (APR) can jump dramatically, making the loan very expensive.

4. Good Credit Score for a Credit Card

While not a loan, credit cards are a crucial stepping stone.

• For Premium Rewards Cards: Scores of 740 and above are necessary to qualify for cards with the highest cash back and travel rewards.

• For Starter Cards (No History): Even for beginners, secured cards require diligence. Learn the process in our guide on How to Get a Credit Card with No Credit History.

How to Achieve a “Very Good” Score for Better Rates

If your score falls in the “Fair” or “Good” category, the increase in interest you pay can be substantial. Taking steps to improve your credit score is the most effective financial move you can make before a major loan application.

• Reduce Credit Utilization: This is the ratio of your credit card balances to your credit limits, accounting for 30% of your FICO score. Pay down balances to keep utilization below 30%, and ideally, under 10%.

• Pay Everything on Time: Payment history is 35% of your score. Make every loan, credit card, and bill payment by the due date. Missing one payment can drastically hurt your score.

• Address Errors on Your Report: Review your credit reports from all three bureaus and dispute any inaccuracies immediately.

• Avoid Closing Old Accounts: The length of your credit history (15% of your score) is important. Keep old credit card accounts open, even if you don’t use them, as they boost your average credit age.

• Limit New Applications: Hard inquiries from loan or card applications can temporarily drop your score. Avoid applying for new credit in the six months leading up to a major loan application.

The key to securing the best possible interest rate is to ensure your credit profile demonstrates reliability. Aiming for a score of 740 or higher puts you in the best position to save thousands on interest payments over the life of any major loan.