How to get a loan with a 500 credit score
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Credit scores can seem a bit of a mystery if you don’t know what your score means, so let’s see how it works. Credit scoring models place a credit score of 500 in the poor range. The closer you get to a good credit score (a FICO score of 670 to 739), the more likely you are to qualify for better rates on credit products.
But having a 500 credit score doesn’t necessarily put you out of the running for a personal loan. Here’s how to get a loan with a 500 credit score.
You can use Credible to compare personal loan rates from various lenders, all in one place.
Can you get a personal loan with a 500 credit score?
It is possible to get a Personal loan if you have a credit score of 500, but there are caveats to be aware of. First, not all lenders will lend money to borrowers with a 500 credit score. Some lenders specialize in bad credit loans, but if you’re approved, you probably won’t get the best rate. interest that a lender has to offer.
The reason it’s harder to find a loan with lower interest rates when you have bad credit is because your credit score tells a lender how you handle your money and how likely you are to pay it back. on time. The lower your credit score, the more lenders consider you a credit risk.
If a lender is working with someone who has bad credit, they will often offset that risk by charging a higher interest rate, adding extra fees to the loan, or requiring collateral to secure the loan.
Is a 500 credit score good?
A credit score of 500 is considered bad credit. The following factors appear on your credit report and can affect your score:
- Age of credit accounts — How long your current credit accounts have been open plays a role in determining your credit score. Lenders like to see a long history of managing credit accounts.
- Use of credit — Your credit utilization rate measures how much of your overall available credit you are using. Keeping this ratio low helps your credit score.
- Payment history – Late payments hurt your credit score, and making regular, on-time payments helps boost your score.
- Open credit accounts — Be careful when deciding to close a credit account. Even if you no longer use an account, closing it can increase your credit utilization rate and shorten the average age of your credit accounts, which can affect your score.
Where to get a loan with a credit score of 500
If you are looking for a 500 credit point loan, you have a few options.
Some online lenders have lower credit rating requirements than traditional lenders. You can usually be prequalified for a loan through an online lender. It involves a soft credit application, so you can check your potential interest rates before you officially apply (i.e. when your credit score may take a hit).
Credible, it’s easy to view your prequalified personal loan rateswithout affecting your credit score.
Banks and credit unions
Credit unions are often more flexible than banks when it comes to loan requirements because they are not-for-profit financial institutions. Credit unions serve their members, while banks seek to make a profit. You usually need to be a member of a credit union to apply for a loan from it.
Many banks require you to have good to excellent credit to qualify for a Personal loan. But some banks offer loans to those with lower credit scores, especially community banks where borrowers already have an established relationship with the bank.
How to get a personal loan with a 500 credit score
If you have a credit score of 500, these are typically the steps you’ll take to get a personal loan:
- Review the candidate requirements. Many lenders advertise the credit score you need to qualify for a loan. Before applying for a loan, see if you can find out the lender’s credit score requirements first so you know if you should rule them out.
- Find out about fees. Lenders try to reduce their level of risk with borrowers who have bad credit scores by charging them more fees in addition to higher interest rates. Confirm the type of fees charged by each lender you plan to apply and how these fees will affect your overall cost of borrowing.
- Prequalify and compare potential loan offers. When you prequalify, your credit score won’t be affected and you can get a general idea of how much a lender will be willing to lend you before you officially apply for a loan. You can prequalify with several lenders and compare different potential offers to see who is likely to offer you the best loan terms, interest rates and fees for your situation.
- Apply. Once you have reviewed your prequalification offers, choose the lender you wish to officially apply to and submit your application.
If you’re ready to apply for a personal loan, Credible lets you compare personal loan rates with various lenders to find the one that meets your needs.
Personal loan rates for bad credit
Interest rates vary from lender to lenderbut let’s look at an example of how your credit score can affect the interest rates a lender offers you.
A fairly average interest rate on a personal loan is 4%, but overall interest rates can go up to 36%.
If you have a good credit score you are more likely to qualify for this 4% lower rate. If you have a credit score of 500, you will likely end up in the upper end of that range, say 25%.
Here’s an example of what a $15,000 loan with a five-year repayment term could cost at these interest rates:
- Interest rate of 4%: Your monthly payment would be $276 and you would pay $1,575 in interest over the life of the loan.
- 25% interest rate: Your monthly payment would be $440 and you would pay $11,416 in interest over the life of the loan, which is nearly $10,000 more in interest charges than the lower rate loan.
You can use The Credible Personal Loan Calculator to see how much your monthly payment could be based on different interest rates, loan amounts and loan terms.