Can I get a loan with a credit score of 550?

Personal loans can be a useful way to cover the costs of major expenses. When you apply, a FICO score between 670 and 850 generally qualifies you for competitive interest rates and loan terms.

But even with a credit score of 550, it is still possible to get a loan. Although it is often more difficult to get approved with such a low score, there are lenders who specialize in lending to individuals with bad credit. However, you will likely face higher annual percentage rates (APRs) and less favorable terms than borrowers with better credit.

Can you get a personal loan with a credit score of 550?

Lenders use your credit score as a way to assess risk. Lower scores could mean missed payments or defaults on your credit history.

Most lenders require a minimum credit score between 600 and 650, but some lenders specialize in bad credit personal loans. It can be more challenging to find a lender willing to work with you, but obtaining a loan with a 550 credit score is possible.

“This type of loan is a specialty for a very small number of lenders who have powerful collection weapons and can take risks,” said Michael Sullivan, education director at the nonprofit credit counseling firm Take Charge America. “Any lender dealing in such loans expects high levels of defaults and losses and acts accordingly. The result is that a personal loan is almost always a bad deal for the consumer with bad credit.”

If you have a credit score of 550, it could affect the terms you’re offered in the following ways:

• A smaller loan amount: Lenders believe that a low credit score means a borrower is more likely to default on a loan. So they may limit the amount you can borrow to less than the maximum amount they offer to borrowers with higher scores to minimize their potential losses.
• A higher interest rate: Your credit score is the main factor that determines your interest rates with most lenders. Charging a higher APR is another way lenders minimize potential losses.
• A shorter maximum duration: The longer the repayment period on a loan, the more likely the borrower will fall on hard times. With a low credit score, you may not qualify for a lender’s maximum terms. This poses a dilemma for some borrowers. A shorter repayment term also means higher monthly payments, which may be harder to keep up with.

What kind of credit score is 550?

A FICO credit score of 550 is considered deep subprime, according to the Consumer Financial Protection Bureau. The Fair Isaac Corporation (FICO), one of the most widely used credit scoring methods, categorizes credit scores of 579 or lower as poor.

How Bad Credit Affects Rates

Lenders see a lower score as a sign of risk. To offset losses from possible missed payments or a loan default, lenders tend to charge more interest if the borrower has poor credit. Average interest rates on loans reflect this practice:

How to Get a Personal Loan with a 550 Credit Score

Obtaining a loan with a credit score of 550 will be more challenging. It is important to be well prepared to navigate the process.

Do your research

Among the best-known lenders offering bad credit loans are:

• Avant: Avant lends money to people with a credit score of 550 or higher.

• Upstart: Upstart has no minimum credit score requirement. Instead, the approval system looks at your income and education level, among other things. Upstart was the Best Lender for Bad Credit at the 2024 Bankrate Awards.

Many more lenders are targeting people with lower credit scores. However, make sure you filter out the infamous ones before signing up. Check out reviews on third-party platforms like Trustpilot to find out a lender’s reputation and look for patterns in customer experiences.

Also be wary of high rates and short deadlines, which can make it difficult to keep up with payments. If you get caught in a cycle of growing debt and defaults, it can seriously damage your finances.

Shop around and prequalify

Eligibility guidelines generally vary by lender. It is important to research multiple lenders to find out which lender is best for you.

Some lender websites have a prequalification tool that allows you to view potential loan offers, including monthly payments and rates, without hurting your credit score. If you decide to make a formal application, the lender may run a hard credit check that could lower your credit score by several points.

Consider secured loans

This type of loan is backed by collateral, such as a house, a car, or another valuable item. You will generally get better loan terms, but you will risk your assets if you default on the loan.

Try credit unions and local banks

“Often it is helpful to have an existing relationship with a community agency as they usually have more flexibility and are willing to take a holistic look at your finances and assess your application based on more than just your credit score “, says debt lawyer Leslie. Tayne, founder of Tayne Law Group.

Find a co-signer

Consider finding a cosigner with a solid credit score if you can’t qualify on your own. “Many lenders will make loans if they are guaranteed by someone with good credit,” says Sullivan.

Alternatives to personal loans

If you can’t get a personal loan or the interest rate you’re offered is too high, consider alternatives to personal loans.

• Improve your credit: Not in a hurry to get the money? Consider spending some time improving your credit score to increase your chances of qualifying for loans with more favorable terms.
• Personal loan from a friend or family member: Identify someone you have a good relationship with and feel comfortable sharing personal financial information with. Make sure you get the agreement, including the monthly payment amount, in writing to avoid confusion in the future.
• 401(k) loan: Consider borrowing from your retirement fund if you have an employer-sponsored 401(k) plan. No credit check is required for these types of loans. “They also have a low interest rate, which you pay back anyway,” says Tayne. However, keep in mind that if you quit your job or are laid off, you will have to pay back your 401(k) loan no later than the next federal tax day.

How to improve your credit score

Several steps can help you improve your financial profile. Some steps work faster than others. So try several, and start well before you need the personal loan.

Check your credit report for errors

Start by making sure the raw information in your credit report used to calculate credit scores is correct. Federal law entitles you to a free copy of your credit report from the major credit bureaus every week.

Visit AnnualCreditReport.com for copies and to view the full contents of the reports. “If you spot any errors, follow the directions on each agency’s website to resolve the issues,” says Freddie Huynh, CEO at Stealth FinTech Startup and credit risk expert.

Pay bills on time

Payment history accounts for 35 percent of your credit score. So if you have any past due accounts, bring them current and continue making on-time payments to avoid continued negative credit reporting.

Reduce debt balances

The amount you owe to creditors is another important part of your credit health. It accounts for 30 percent of your credit score. If possible, reduce your revolving debt balance to below 30 percent. That will improve your credit utilization and possibly increase your credit score. For example, if your credit limit is $1,000, try to keep your outstanding balance under $330.

Maintain old credit cards

The length of your credit history accounts for 15 percent of your credit score. Credit age is the amount of time you have had accounts open. It’s best not to close old credit accounts even after the balance has been paid off, as this can shorten the overall length of your credit history.

Open a secured credit card

This normally involves making a refundable deposit of $500 or less in exchange for a line of credit worth this amount. You can improve your credit score by using the card to make small purchases — without exceeding a 30 percent occupancy rate — and paying the bill in full each month.

“Secured credit cards are typically issued to people with no or poor credit,” says Huynh. “This includes someone who needs to rebuild their credit after bankruptcy, who needs help building credit for the first time, or who is having a very difficult time managing their expenses and using a credit card.”

The bottom line

It is possible to get a personal loan with a credit score of 550. However, you will need to spend time shopping around to find lenders who will work with you. This time is well spent as it will also help you find the best possible interest rate on personal loans.

If you can’t get a personal loan with bad credit, consider focusing your efforts on improving your credit score. Then apply for a loan again in a few months.