What Are The Best 500 Credit Score Loan Options?
11 Min Read
You can face many difficulties in your financial life if your credit history is considered bad or poor. Whether you turn to a direct lender to get a cash advance or want to rent a house, your loan provider or a property management company can make a hard or soft credit pull to ensure it’s safe to deal with you. Thus, having a bad credit score can make it challenging for you to get installment loans, go through a daily routine, and maintain a regular lifestyle.
But what about a 500 credit score? Is a 500 credit score loan a type of bad credit borrowing? Let’s find out!
Table of Content
- What Is a Credit Score?
- Why Does a Credit Score Play a Role?
- Is a 500 FICO Credit Score Considered Good or Bad Credit?
- Do Loans for a 500 Credit Score Really Exist?
- What Loan Options Can I Get with a Poor Credit Score?
- How Much Money Can I Borrow with a 500 Credit Score?
- Where Can I Get a 500 Credit Score Loan?
- Pitfalls of 500 Credit Score Loans
- Best Ways to Improve Your Credit History
- Final Thoughts
What Is a Credit Score?
A credit score is a rating on a scale from 300 to 850 that shows how good you are at managing your debt and finances over a given period of time. The summary that contains all your financial information is called a credit report. All banks and credit unions always check your credit report details before making a loan decision. Such checks are known as hard credit inquiries. They are aimed at determining your creditworthiness and showing a lender whether or not you’re a reliable borrower.
Your credit score is not constant. Its fluctuation is conditioned by the fact that traditional lenders always report all your loans and credit cards to three nationwide credit reporting bureaus. These bureaus collect and update your credit and payment history and save this information for future creditors. If you fail to make on-time payments at least once, your credit score will drop.
However, your loan payments are not the only factor that affects your credit score. Your current unpaid credit card debt, length of your credit history, debt-to-income ratio, the number of credit accounts you have, and the way you pay your bills also matter. But you may wonder why you need to maintain the best credit rating possible. Let’s take a close look at what may be the consequences of having a low credit score.
Why Does a Credit Score Play a Role?
Having a bad credit score typically results in problems with getting a loan or a mortgage in the future. It happens because traditional lenders always have a minimum credit score requirement that you must meet to apply for a personal loan. Even if a lender accepts borrowers with low credit scores, it’s more likely to offer them higher interest rates or lower credit limits compared to good credit score borrowers.
But obtaining debt is not the only process that can be challenging for an individual with a poor credit score. People with bad credit scores can find it difficult to rent a house, find a new job, or even apply for a cell phone plan. Therefore, you need to make an effort to keep your credit score as high as possible.
Is a 500 FICO Credit Score Considered Good or Bad Credit?
Unfortunately, a 500 credit score is considered very poor credit. This category is relevant for any credit score with a number between 300 and 579. Next comes fair credit, which is from 580 to 669. A good credit score is a value that is between 670 and 739. Then, the value from 740 to 799 is considered very good credit. Finally, a credit score between 800 and 850 is an exceptional rating.
People with good credit or higher can generally count on any type of traditional financial assistance. Also, they are more likely to get personal loans with lower interest rates. When it comes to credit cards, good credit consumers also get higher credit limits. But even if you’re from an under-banked category, it’s not the end of the world. Luckily, borrowers with low credit scores still have some options to consider when they are in need of financial assistance.
Do Loans for a 500 Credit Score Really Exist?
Gladly, people who have a 500 credit score are not doomed. There are multiple lenders that accept loan requests from bad credit borrowers and approve them easily, provided that a person has a steady monthly income.
These loans are typically called bad credit loans and are available from both traditional financial institutions and online direct lenders. Although a bad credit loan is known for being easier to qualify for with a low FICO rating, there are some cons you need to be informed about. Loans for a 500 credit score often have a higher interest rate and are considered expensive.
What Loan Options Can I Get with a Poor Credit Score?
Even if your FICO rating is damaged by your past financial mistakes, there are still options that allow you to borrow money for various needs. Here are some common types of loans for a credit score under 500.
Secured Personal Loans
Secured personal loans for a 500 credit score are usually offered by traditional lenders. They are available for borrowers who own some valuable property and are ready to borrow money against it. This means that you have to provide a lender with collateral in the form of your belongings. If you don’t want to lose your property, you must make on-time payments.
A secured personal loan is probably one of the cheapest options for bad credit. This becomes possible because financial institutions have a return guarantee in case you default. However, it can be pretty risky for you. Also, any traditional personal loan for a 500 credit score involves a hard credit check through major credit bureaus. Thus, you need to be ready for your credit score to go down.
Secured Credit Cards
A secured credit card can be a great option if you need to always have money on hand for some regular spending or unplanned expenses. Unlike an unsecured credit card, a secured one requires you to make a refundable deposit that will be repossessed if you won’t make a monthly payment on time after a draw period ends. The amount you place as a deposit will be your credit limit.
You can make any payments and cover any needs within this limit. A credit card issuer will return the money you’ve placed after your repayment period expires without any issues.
Although a car loan is commonly an option that requires you to have a good credit rating to get it, there are some ways of obtaining an auto loan with a bad one. For example, when you use your car as a pledge while you keep repaying your loan. This way, a lender can confiscate a vehicle in case of any problems with your monthly payments.
When it comes to federal student loans, most of them (except for PLUS loans) are available with any credit score. If you’re going to get a private student loan, your bad credit score may be a problem. This way, a lender may require you to bring a co-borrowers with a good FICO score.
Borrowers with low FICO scores who want to purchase a house can apply for FHA home loans. An FHA loan is a government-backed option that allows people to become homeowners by meeting relatively simple financial requirements. Even if your credit is bad and your income is limited, you can still qualify. However, you will be asked to make a 10% down payment if your credit score is between 500 and 579.
Also, the amount of your monthly payments will be higher too. This happens because of the more expensive interest rate. Additionally, this option comes with two more drawbacks, which are limited choices and mortgage insurance.
Some experts think that people who can’t qualify for a traditional mortgage with a lower interest are basically not ready for a mortgage. However, it’s always up to you. Just make sure that the amount you will be obliged to pay each month is the one you can afford.
Emergency Loans for a 500 Credit Score
Emergency loans for a 500 credit score are alternative types of borrowing that are known for fast money transfers to a borrower’s bank account. They can be commonly divided into online payday loans, installment loans, auto title loans, and bad credit personal loans. The auto title loan is the only secured loan among them. Thus, most emergency loans don’t require any collateral backing.
As these loans were designed to help needy people overcome their small financial emergencies in a short time, loan amounts you can access are typically not high. Some emergency loans have installment payment plans (for example, an installment loan or a bad credit loan with guaranteed approval), while others require you to repay them in full by your next paycheck (it applies to payday loans and auto title loans).
Emergency loans for a 500 credit score are one of the easiest loans to get. However, they are also the most expensive ones. Interest rates on such loans can be sky-high. For example, an APR on a payday loan can reach 400% in some states.
How Much Money Can I Borrow with a 500 Credit Score?
Loan amounts will vary depending on the type of assistance that you’re going to apply for. Some loans are limited to $1,000. Others allow you to access up to $5,000 or $15,000. But if you consider a loan for a major purchase, for example, a mortgage, the amount can be much higher. The exact sum you can get is calculated based on your income. It also depends on the lender and the specific conditions of the particular loan type.
Where Can I Get a 500 Credit Score Loan?
Some loan options can be offered solely by traditional lenders, such as your local banks and credit unions. This mostly applies to FHA loans and secured personal loans, such as home equity loans, share savings loans, and others. However, some financial institutions can set their requirements for minimum credit scores even for their secured options. Also, you need to be ready to go through a hard credit check if you deal with a traditional lender.
But there are other lenders that have no minimum credit score requirements and don’t check borrowers’ credit reports through major credit bureaus. They are usually called bad credit loan lenders. They can operate both online and offline and are known for being fast in terms of loan processing and money funding.
Also, one of the easiest and fastest ways to find a lender is to turn to a reliable connecting service. These platforms use their networks of trusted direct lenders and can link you with the one that can help you with getting a loan. Bad credit lenders are better to turn to in case of financial emergencies or when you need a small loan amount to cover your cash shortages.
Pitfalls of 500 Credit Score Loans
The main disadvantage of a loan for a 500 credit score lies in its price. Keep in mind that the lower your credit score, the higher your loan interest rate will be. Also, note that any payment delays can make your credit score even lower. This way, you need to realize what you do when you take out loans for a 500 credit score and make sure you can afford it. Also, you can take some steps to improve your credit score in order to get better loan terms.
Best Ways to Improve Your Credit History
Unfortunately, it is impossible to improve your credit history in one day. Maintaining a good credit history is a process that will require you to make efforts throughout your entire life. For example, you should pay all your bills and loans on time, as well as keep an eye on your debt-to-income ratio. But there is something you can do today.
For example, check your credit report for errors, pay off your outstanding bills, or make debt consolidation to reduce the number of credit accounts you have and boost your credit score. The actions you need to take mostly depend on why your credit score becomes low. Make a free credit report check to determine the reason.
Although a 500 credit score is considered bad credit, it’s not a verdict. It’s still possible to get a personal loan with such a score if you choose the right lender and financial option. A 500 credit score loan can be a good alternative to a traditional personal loan. However, it can be more expensive and sometimes difficult to get.
To get a positive borrowing experience, you need to take into consideration all the drawbacks of the loan that you’re going to get. Make sure that you’re ready to face them and understand all the risks. Also, compare offers to pick an option with the best possible conditions. Make sure you will be able to repay your loan on time to avoid penalties. In addition, if you’re going to apply for a loan from banks or credit unions, consider improving your credit score to get more favorable loan terms.
Can I Get a Loan with a 500 Credit Score?
Sure, it’s possible to obtain a loan with a 500 credit score, provided that you select the lender that offers financial products for people with low credit. For example, you can qualify for a secured personal loan, an auto loan, a government-backed mortgage, a secured credit card, or an emergency loan. But make sure you get acquainted with the loan conditions and understand them.
Do Traditional Lenders Provide Personal Loans for 500 Credit Score Borrowers?
In some cases, a bank or a credit union can provide you with a personal loan even if you have a 500 credit score. However, it will typically be secured or government-backed debt. Also, not all traditional financial institutions accept applications from borrowers with less-than-perfect credit. Thus, you’d better contact a lender and specify this nuance before applying.
What Are The Best Personal Loans for a 500 Credit Score?
It always depends on your expectations, the amount of money you need, and your current situation. Of course, the best loans are those with flexible terms, low interest rates, low fees, and suitable loan amounts. However, people with poor credit can find it hard to get a loan that offers all these benefits.
How Long Does It Take to Improve My Credit Rating?
Fixing your credit score doesn’t happen overnight. It typically takes from 30 to 90 days, depending on the reason why your credit score is low and the activities that you need to take to improve it.
Get the funds you need even with a 500 credit score or lessApply