Getting Loans With A Credit Score Under 550 – What You Need To Know

Having a credit score under 550 can make getting approved for loans very challenging. However, it is still possible with the right preparation and approach. In this comprehensive guide, we’ll provide key information for borrowers with credit scores below 550 who need funding now.

What Is Considered A Poor Credit Score?

Your credit score falls on a range between 300 to 850. The closer to 850, the better your score Anything below 580 is considered poor or bad credit by most lenders

Specifically

• 300 to 579 – Poor/Bad
• 580 to 669 – Fair
• 670 to 739 – Good
• 740 to 799 – Very good
• 800 to 850 – Exceptional

So with a score under 550, your credit is on the lower end of poor. This will make getting approved for financing more challenging but not necessarily impossible.

Why Is Your Credit Score So Low?

There are a few key reasons why your credit score may have fallen below 550:

• Late payments – If you frequently pay bills late, it can significantly drag down your score. Even one 30-day late payment can drop your credit score by 100 points or more.

• High balances – Carrying high balances on credit cards and other revolving credit accounts can hurt your credit utilization ratio and lower your score.

• Not enough history – If you have limited accounts or a short credit history, it can be harder to get a high score.

• Collections – Unpaid collections accounts can devastate your credit. Just one recent collections account can drop your score by over 100 points.

• Bankruptcies/foreclosures – These major negative credit events can crush your credit for years. A recent bankruptcy can easily drop your score below 550.

How To Start Rebuilding Your Credit

Before applying for new financing, work on improving your credit first if possible. Here are some tips:

• Pay all bills on time – Set up autopay, reminders and do whatever it takes to make timely payments. This consistency is key.

• Pay down balances – Get credit card and loan balances well below 30% of the limit. The lower the better.

• Avoid new credit inquiries – Limit new applications. Too many hard inquiries can negatively impact your score.

• Monitor your credit report – Review all three credit bureau reports for errors and dispute any inaccuracies.

• Consider credit-builder loans or secured cards – These products can help establish positive payment history.

With diligence, you may be able to improve your score 100 points or more within 6 months to a year.

Types Of Loans To Consider With Bad Credit

While rebuilding credit is ideal, it’s not always an option when you need money now. Here are some financing options those with credit under 550 may still be able to qualify for:

Online Personal Loans

Personal loans are unsecured, meaning no collateral is required. Online lenders provide more options than banks for borrowers with low credit scores. Expect high interest rates and smaller loan amounts. Lenders that may approve applicants with scores below 550 include:

• OneMain Financial – Minimum credit score requirements as low as none
• Avant – Minimum credit score of 550
• Upgrade – Minimum credit score of 560
• LendingPoint – Minimum credit score of 600

Loan amounts can range from $1,000 to $35,000. Interest rates often fall between 20-35%.

Credit Builder Loans

These installment loans place funds into a locked savings account. You make monthly payments, then receive the loan amount plus interest after successfully repaying it. This helps establish positive payment history.

Secured Loans

Secured loans require an asset like a car title, jewelry or real estate equity as collateral. This lowers the lender’s risk. Common options include auto title loans or home equity loans/lines of credit.

Payday Alternative Loans (PALs)

Offered by some credit unions, PALs provide short-term loans up to $2,000 with interest rates capped at 28% APR. Membership in the credit union is required.

401(k) Or Pension Loans

Some employers allow you to borrow against your 401(k) balance. Likewise, pension loans use your pension payments as collateral. These should be last resorts, as failing to repay can have serious tax consequences.

Peer-To-Peer (P2P) Lending

P2P lending services like Prosper, Upstart and LendingClub connect borrowers with individual investors willing to fund personal loans. Minimum credit requirements may be 550 to 640.

Debt Consolidation

Debt consolidation loans allow you to roll multiple high-interest debts into one new loan with fixed monthly payments. This can simplify repayment. Debt management plans provide a similar option without requiring a new loan.

What Information Lenders Consider With Low Credit Scores

Along with your credit reports and scores, lenders dig deeper to evaluate your ability to repay loans if your score is low. Information they review can include:

• Income – Higher and more stable incomes improve approval odds. Pay stubs or W-2s may be required as proof.

• Assets – Significant assets you own free and clear (like real estate equity) may help offset low scores.

• Existing debts – Too much debt already can make approval unlikely no matter your income. Minimum monthly payments are scrutinized.

• Length of employment – A long, stable work history helps demonstrate reliability.

• Loan purpose – Reasons like medical bills may be viewed more favorably than luxury purchases.

• Collateral – Available assets to secure the loan can lead to approval with bad credit.

• Down payment amount – Larger down payments on big purchases like autos may help secure loans.

Tips To Get Approved For Loans With Credit Under 550

Follow these tips when seeking financing approval with very poor credit:

• Check your credit reports – Make sure all information is accurate before applying. Dispute errors.

• Know your credit scores – Different scoring models exist, so check all of them before applying.

• Gather documentation – Have pay stubs, tax returns, bank statements and anything else that supports your ability to repay ready.

• Add a cosigner – Asking a friend or family member with good credit to co-sign can improve your chances significantly. But cosigners are also responsible for repayment if you default.

• Offer collateral – Assets to secure the loan can provide peace of mind to lenders. Just be sure you won’t need to sell the collateral.

• Make a large down payment – Putting down 20% or more on a secured loan can help offset a low score.

• Apply with subprime lenders – Specialty lenders that offer financing to borrowers with bad credit and no credit are your best options.

• Consider a secured credit card – After improving your credit, securing a credit card with a security deposit helps build positive payment history.

Alternatives To Loans For Bad Credit Borrowers

If loan options remain limited, consider these other possibilities to get needed funding:

• Crowdfunding – Creating an online campaign through GoFundMe, Kickstarter and other platforms lets you raise small donations from friends, family and the public.

• Community programs – Nonprofits, places of worship and other community sources may offer charitable assistance or low-interest financing.

• Employer benefits – Employee relief programs, company loans and advanced paycheck tools could provide options.

• Side jobs – Taking on part-time work or freelance gigs can help bring in extra income to save up or pay down debts.

• Credit counseling – Reputable credit counseling agencies may be able to negotiate reduced payments or interest rates on debts.

• Debt management plans (DMPs) – DMPs help consolidate debts into more affordable monthly payments, like debt consolidation loans.

• Bankruptcy – For extreme circumstances with overwhelming debt, bankruptcy may be an option to discharge debt and start fresh.

• Hard money loans – These short-term real estate loans are backed by the property itself rather than credit, but come with high rates and large origination fees.

Final Tips For Getting Loans With Very Poor Credit

Having a credit score below 550 will make getting approved for financing quite difficult. But if you need funding now for important purposes, follow these final tips to improve your chances:

• Shop with subprime lenders comfortable with riskier borrowers
• Have all your documentation ready upfront
• Highlight additional income sources beyond your main job
• Explain any past credit issues briefly in your application
• Offer to make a larger down payment if possible
• Be prepared for higher interest rates and stricter repayment terms
• Consider adding a cosigner or collateral if applicable

While far from ideal, getting loans with very poor credit is still achievable in many cases. Stay persistent and explore all your options both online and locally. With some extra work, you may be able to secure the financing