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Good credit can make it easier to get a personal loan, but with the right lender, a high credit score isn’t always required to get approved. For borrowers with a credit score of 550 or below, which is considered “poor” on the FICO Score scale, there are options.
How To Get a Personal Loan With a 550 Credit Score
Getting a personal loan with bad credit can be challenging because, from a lender’s perspective, having a history of late payment or loan defaults makes you a higher-risk borrower.
However, certain lenders have loans for people who have less-than-stellar credit. In some cases, lenders may accept a credit score as low as 300. Here are ways to qualify for a loan with a 550 credit score:
- Compare lender requirements. Not all lenders publish minimum loan application requirements on their websites, but some do. Compare eligibility conditions to see which lenders accept borrowers with bad credit.
- Prequalify for loans. Many lenders and loan marketplaces have online prequalification forms where you can check rates to see which offers you might qualify for without a hard credit check. Prequalifying is a way to review options available for your credit profile.
- Look into secured loans. Secured loans are loans backed by collateral like a savings account or other property. When loans are backed by collateral, lenders can recoup costs by taking the asset that secured the loan if you default. Since pledging collateral reduces risk for the lender, it could help you get approved, and in some cases, for better rates.
- Clean up your credit report. You might not be able to improve your credit score 100 points overnight, but taking steps like reducing credit card debt and disputing incorrect credit report records could improve your score enough to qualify for a better personal loan.
- Get a co-signer or co-borrower. A co-signer is someone included in your application who guarantees repayment of your loan if you default. A co-borrower applies with you jointly and is also responsible for payments. Finding a co-signer or co-borrower with great credit can help you get approved for a loan with more competitive terms.
Should You Take Out a Payday Loan?
If you’re having trouble getting personal loans with a 550 credit score, payday loans may look like a good option. But they’re usually not.
Payday loans are short-term loans that provide you cash to hold you over until your next paycheck. They offer lenient eligibility requirements, but they tend to have exorbitant interest rates and fees that can equate to an APR of 400% or more. In comparison, interest rates for personal loans through banks, credit unions and online lenders usually cap at 36% APR, and credit card rates generally go up to 30%.
Payday loans can be financially damaging due to how they can keep you in a cycle of debt. If you can’t pay off a payday loan by your next paycheck, you could get hit with a rollover fee, and fees can quickly add up, surpassing the amount you originally borrowed.
Car title loans and pawnshop loans are other types of short-term, easy-to-qualify-for loans that can come with high fees. If you don’t pay off the title or pawnshop loan, your car or collateral (like jewelry) could be taken.
When you have bad credit and you’re feeling a financial pinch, negotiating a payment plan with creditors, researching emergency financial assistance options or borrowing money from someone you know could be better ways to bridge a gap than getting an expensive short-term loan. Before you take on any debt, know exactly what it’ll cost to repay and what happens if you fail to make payments.
Is a 550 Credit Score Bad?
A 550 credit score on the FICO Score scale is considered a poor credit score. Below are the credit score ranges:
- Poor — 580 and below
- Fair — 580 to 669
- Good — 670 to 739
- Very Good — 740 to 799
- Exceptional — 800 and above
How To Improve Your Credit Score
While it can be deflating to find out you fall in the “poor” credit score range, that doesn’t have to be your reality forever. Rebuilding credit is possible by taking some of the steps below:
- Pull your credit reports and scores. You can get your credit reports from all three credit bureaus at AnnualCreditReport.com to see what’s on them. While those reports don’t come with scores, you can check your credit scores through a financial institution that offers free credit score monitoring. And if your financial institution doesn’t, you could sign up for credit monitoring at myFICO.com.
- File disputes for incorrect information. If you find incorrect records on your credit reports, such as late payments or accounts that don’t belong to you, file disputes with each credit bureau reporting the information. Having negative information removed from your credit reports can help your scores.
- Make all payments on time. Your payment history greatly impacts your credit score, so it’s crucial that you make all payments for open accounts on time. If you can’t make payments, contact the creditor right away to see if you can set up a payment arrangement that will keep your account in good standing.
- Lower your credit card debt balances. Your credit utilization ratio is another credit factor that has a major impact on your credit score. Maintaining high balances on credit cards increases your credit utilization ratio, which can dock your score many points. Lowering your credit usage by paying off credit card debt may boost your score.
- Become an authorized user. If you become an authorized user on someone’s credit card, you’re not responsible for their debt, but their on-time payment history may show up on your credit report. Consider asking someone who has stellar credit to let you become an authorized user on their card to piggyback on their positive payment history.
- Add rent and subscriptions to your credit report. Rent and non-credit bills, like a Netflix subscription, don’t usually show up on your credit report. However, in some cases, you can sign up for services to have these bills added. For example, Experian Boost and RentReporters can add on-time utility bills, rent and subscriptions to credit files that could improve your score.
Other Financing Options for a 550 Credit Score
Affordable financing options are limited for borrowers who have bad credit, but below are some alternatives to personal loans:
- Credit cards. Borrowers with bad credit may qualify for secured credit cards and some unsecured cards. Interest rates on credit cards for card holders with poor credit can be high, but paying off your balance at the end of each billing cycle can help you avoid interest charges.
- Payday alternative loans (PALs). Federal credit unions may offer payday alternative loans to borrowers as a more affordable option than payday loans. These are small, short-term loans that can have low interest rates and fees.
- Store credit cards. If you want to finance a major purchase, like furniture or a piece of equipment, the store you’re buying from may offer a store card that could be easier to qualify for than a major credit card. Again, interest rates on store cards may be high, but paying off the balance fast can minimize the amount of interest you pay long-term.
- Medical financing. If you need to borrow money for health care, medical financing options could cover bills for yourself or a pet. CareCredit, for example, is a medical financing card that may have no-interest or low-interest introductory offers.
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