Can I Get a Loan With A 550 Credit Score?

We Are/Getty Images; Illustration by Austin Courregé/Bankrate

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

But even with a 550 credit score, it is still possible to get a loan. While it’s often more difficult to get approval with a score this low, there are lenders specializing in loans 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 low credit score?

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

Most lenders require a minimum credit score of between 600 and 650, but some lenders specialize in bad credit personal loans. It may 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 few lenders who have forceful collection arms and a capacity for risk,” says Michael Sullivan, a personal finance consultant with non-profit credit counseling agency Take Charge America. “Any lender dealing in such loans expects many defaults and losses, and acts accordingly. The result is that a personal loan is almost always a bad deal for the consumer with poor credit.”

Having a credit score of 550 might affect the terms you’re offered in a number of ways.

• A smaller loan amount: Lenders think a low credit score means a borrower is more likely to fail to repay a loan. So they may limit the amount you can borrow to less than the maximum amount they offer borrowers with higher scores to minimize their potential losses.
• A higher interest rate: Your credit score is the top factor determining your interest rates with most lenders. Charging a higher APR is another way lenders minimize possible losses.
• A shorter maximum term: The longer the loan repayment term, the more chances there are for the borrower to hit hard times. With a low credit score, you may not qualify for a lender’s maximum terms. This presents a dilemma for some borrowers. A shorter repayment term also means higher monthly payments that could be harder to keep up with.

What kind of credit score is 550?

A 550 FICO credit score is considered deep subprime, according to the Consumer Financial Protection Bureau. The Fair Isaac Corporation (FICO), which is 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. So to offset loss from potential missed payments or a defaulted loan, lenders tend to charge more on interest if the borrower has bad credit. Average loan interest rates reflect this practice:

How to get a personal loan with a 550 credit score

Obtaining a 550 credit score loan will be more challenging. It’s important to be thoroughly prepared to navigate the process.

• Do your research: Eligibility guidelines can vary widely by lender. It’s important to research multiple lenders to find out which lender is best for you.

• Shop around and prequalify: Compare rates and terms to get the best deal for your unique situation. Some lender websites feature a prequalification tool that allows you to view potential loan offers without hurting your credit score. Once you decide to apply, a full application will likely result in a hard credit check.

• Consider secured loans: This type of loan is secured by collateral, like a house, a car or some other item of value. You’ll generally get better loan terms, but you risk your asset if you default on the loan.

• Try credit unions and local banks: “Often, having an existing relationship with a community institution is helpful, as they usually have more flexibility and may be willing to take a holistic look at your finances and evaluate your application based on more than just your credit score,” says debt attorney Leslie Tayne, founder of Tayne Law Group.

• Find a cosigner. Consider finding a cosigner with a solid credit score if you’re unable to qualify on your own. “Many lenders will provide loans if they are guaranteed by someone with good credit,” Sullivan says.

Bottom line

Getting a personal loan with a 550 credit score is possible. However, you’ll need to invest time in shopping around to find lenders willing to work with you. This is time well spent, as it will also allow you to find the best personal loan interest rate possible.

If you cannot get a personal loan with bad credit, consider redirecting your efforts toward improving your credit score. Then reapply for a loan in a few months.