Getting a personal loan with a credit score 550 or less is not easy but it is not impossible if you understand how lending works. It will take some work, but it can be done.
The necessary steps involve checking your credit history, reviewing your credit report for errors, improving your credit score, catching up on late or missed payments, saving and building an emergency fund.
Naturally, if you have money in your savings account and an excellent credit score, getting a personal loan is not only much easier, but it almost guarantees better credit rates and repayment terms.
Your credit score is important, but it is not the only that matters, so it is good to understand all the other eligibility criteria. If you take care of making your loan application as attractive as possible to the lender, you may still have a chance of getting your loan approved even if your credit score is 550 or less.
Some lenders choose not to approve loan applications from people who have a poor credit score, while others specialize in helping people with poor or very poor credit score (at a higher rate).
Understanding How Lending Works
Lenders and credit providers must adhere to responsible lending conduct obligations which means that they cannot lend money to people who may not be able to repay the loan. This is to protect people who take a loan to pay off a loan they already have without taking into account that they will have to additionally pay the service fee and credit rates – which may be higher if their credit rate is not so good.
Apart from your credit score, the lenders will look at your bank statements to see how much money you have, and how you save and spend your money. Impulse buying, irregular income, erratic saving, no emergency cash fund, late or missed payments on your credit cards will most likely work against you. If you are unemployed your chances of getting your loan application approved are even slimmer.
Conversely, if you have good, stable job, a budget you stick to it, have a saving account where you deposit money regularly (even if it is only a small amount), pay all your bills and credit obligations on time, the lender might consider that and decide that you can be trusted with the loan despite you low, fair, or average credit score.
What Does a Credit Score 550 or Less Mean?
Depending on the credit bureau, the numbers may look a bit different.
If you request a copy of your credit report from Equifax, you will see that a personal score between 622 and 725 is considered good, between 510 and 621 is average, and below 510 – which is below average.
If you use Experian, 500-699 is average, over 500 – good, between 300 and 499 means “room to improve”, and between 1 and 299 – low.
An average personal credit score is not too bad. It could be much better but at least it means that you haven’t experienced any major defaults, bankruptcy, or other financial disasters.
To improve this credit score, make sure that you pay everything on time and limit unnecessary loan and credit applications until it looks much healthier.
If your credit score is fair, which is below average, it may mean multiple missed or late payments. It may also mean that you never had a loan or credit card, so you did not have the opportunity to build your good credit score yet (many young customers are in this position). This credit score may still look risky to the credit provider, especially if you are applying for an unsecured loan.
Use the tips above to manage your money smartly and you will be able to improve your credit score quickly.
Getting a Personal Loan with a Credit Score 550 or Less
Start from rebuilding good credit
This is something you can do straight away, no matter what your situation. If you open a savings account and deposit a couple of dollars every week, it will not make you wealthy, but it will show your willingness to learn money management skills, and your determination to improve your financial situation.
Research lenders who specialize in bad credit
Check their reputation (some simply take advantage of desperate people) and remember as they take more risk, they usually apply very high credit rates (even a few times higher than the average). Get a few quotes and see what is available.
Apply for a secured loan
This will be much easier to obtain as it is less risky for lenders.
Try online lenders
Online lenders have fewer overheads than brick and mortar credit providers do, so they can afford to offer better rates.
Get and keep a job – or have another reliable income source
This is extremely important as lenders will require proof of income. Lenders appreciate if you have a stable job but switching jobs with moving up in salary and position is a good sign, too. If you are self-employed, you can provide tax statements and bank statements as your proof of income.
Try peer-to-peer loan (marketplace lending)
If you have bad experience dealing with the banks, or you are not eligible for a loan from a traditional lender, the peer-to-peer loan may be a good option. You apply using an online lending platform such as Society One that connects quality borrowers who are looking to get a better and fairer deal on a personal loan than they’d get from the big banks with investors who want to support people and are looking to get great returns.
Ask a friend or a family member to co-sign the application
This will help you get the loan approved, and will also help you build your credit score as you repay the loan.
Consider other options
If getting a loan is critical and your very basic survival depends on it, try other options before you apply for another loan. You may want to speak to an expert for a free financial counseling hotline on 1800 007 007.and ask for advice. Remember that every situation is different, and they may find a solution you did not know existed or help you choose the best lender if you decide to use one.
If you need a loan to pay your bills or debt, talking to your electricity, gas, phone or water provider often works. They are often happy to create a payment plan for you to make the repayment more affordable.
Even if your credit score is 550 or less, there are options available if you need a personal loan. Online platforms make it easy, some credit providers offer minimal or no credit checks and some flexibility in repayments, just watch those high rates and disreputable lenders.
The best way to get a loan if you do not need it now is to take the steps described above. Improving your credit score not only increases your chances of getting your application approved but will reduce your stress as well.