A credit score of 450 or 500 is considered poor credit, so it may be a good idea to think about how to improve it. However, it always takes some time. But what should you do if you need a loan right away but are still in a bad credit score team? The good news is that you have some options to consider. On the other hand, the terms you will be offered are more likely to be questionable. Let’s take a look at what you can get with a 500 credit score.
Is a 500 Credit Score Good or Bad Credit?
A FICO credit score is always a number between 300 and 850. Although each credit bureau uses its scoring model to determine your creditworthiness, a 500 credit score is considered poor or very poor in all three of them. It’s also a below-the-national average rating, with the US average credit score equaling 714. Unfortunately, having a poor or bad credit score can increase your living cost, damage your lifestyle, and result in problems with finding additional financing.
How a Poor Credit Score Affects My Ability to Get a Loan?
Borrowers with bad and poor credit scores can experience multiple difficulties if they are going to get a loan. Having a low credit score can either decrease your chance of being approved for a loan or make a loan several times more expensive.
Additionally, your borrowing options will be limited. Traditional lenders always check your credit history through the three major credit bureaus, so you won’t be able to qualify for a conventional loan if you don’t meet their minimum norms. Even if your credit score is passing but close to the bottom, you may face additional eligibility criteria or higher rates and fees.
As a result, most bad credit customers are forced to rely on online lenders. Most of them have no minimum credit score requirements and offer fast and convenient solutions for emergencies. Although it can be a lifesaving option for some, you need to be ready to get a much higher interest rate and less favorable loan terms.
Besides potential loan denials and higher costs, a low credit score also comes with the following implications:
- Problems with a car rental;
- Difficulties with finding a job;
- Higher costs of insurance;
- Stricter requirements for a house rent;
- More expensive phone contracts.
What Loan Can I Get with a 500 Credit Score?
Although bad credit borrowers are typically limited in choice, they can still access some financing options with no minimum credit score requirements. Below are some popular examples.
Let’s get it straight: payday loans are one of the most expensive borrowing options in the whole industry. Therefore, many experts don’t recommend using them. However, it is also the easiest-to-get loan with a 500 credit score due to the absence of hard inquiries and lenient eligibility criteria. This short-term loan has loan amounts that usually don’t exceed $1,000 and must be repaid in full within just a few weeks.
In terms of an annual percentage rate, payday loans hit record levels. If you’re going to obtain one, get ready for a three-digit annual percentage rate, which is often over 400%. However, a payday loan has a limited repayment term, too. This helps them stay relatively affordable.
On average, you will be charged an extra $10 to $30 for each $100 borrowed. This high price is conditioned to their accessibility and speed, along with lenders’ risks. Payday lenders don’t require a borrower to provide collateral. They also don’t check your credit report details to assess your reliability. Instead, they pay attention to your solvency to ensure you can repay the loan when due. Therefore, payday loans are quite easy to get with a 500 credit score.
An installment loan is a more expensive alternative to a traditional personal loan. It can also be called a longer-term alternative to a payday loan. Installment loans provide borrowers with lump sum deposits that must be repaid in equal monthly payments. The repayment terms are usually shorter compared to regular personal loans and are typically up to 24 months.
Although they seem more budget-friendly than payday loans, don’t let this ostensible advantage convince you. Longer repayment terms result in higher overpayment over the loan lifetime. Thus, installment loans are often more expensive in the long run.
Auto Title Loans
An auto title loan is a secured loan, meaning that you need to pledge an asset to guarantee an on-time repayment. As we can see from their name, these loans use a borrower’s vehicle as collateral. The maximum amount you can get is usually about 50% of your car’s market price. You can still use your car while it serves as a repayment guarantee. However, you can lose it if you don’t repay the money when due.
Another danger of auto title loans is their short repayment terms. Just like with payday loans, the whole amount should be repaid in full when your next paycheck arrives. Although collateral reduces the loan cost, it also makes the loan riskier for a borrower.
Pawn Shop Loans
A pawn shop loan can be a good choice for people with no bank accounts. They allow you to get money on hand against some asset you own. To get the funds, you need to visit a pawn shop with your belongings. After a prompt evaluation, a pawnbroker will tell you how much money you can get in exchange for your property. However, you don’t sell your asset but only give it as a pledge. This means that in case of timely loan repayment, you will get it back. Otherwise, the pawnbroker can sell it to another visitor.
Secured Personal Loans
A secured personal loan can provide you with access to a needed amount at relatively favorable terms in exchange for partial ownership of your pledged asset. These loans are typically offered by conventional lenders. However, it may take you some time to find a lender that will accept a 500 credit score. Even when it comes to collateral loans, most conventional loan providers require a borrower to have at least a 640-650 credit score.
Payday Alternative Loans
Payday alternative loans are financial products offered by credit unions. Thus, to get one, you need to be a member of a particular CU. These loans are a more favorable alternative to regular loans till payday. They usually have extended repayment terms that may be up to 6 months. You can also get a higher loan amount, and the interest rate is capped at 27%.
Credit Cards for a 500 Credit Score
If you want to prepare for difficulties in advance or have a plan B just in case, credit cards may suit you better than loans. This is because they allow you to pay interest only when you use it and only on the amount you actually spend. Thus, you can get one and access the money within your credit limit when an emergency knocks on your door.
Borrowers with a 500 credit score can access secured and unsecured cards. However, both options have some nuances.
Secured Credit Cards
A secured card is quite popular with people who are just starting to build credit. However, it can also be used to improve your existing rating. A secured credit card requires a cash deposit that serves as collateral. This security deposit also acts as your credit limit.
By making purchases and paying timely, you demonstrate responsible financial behavior. Your credit card issuer then reports your on-time payments to credit bureaus, making your credit rating rise. However, if you stop paying your credit card bill on time, the lender will take the amount you owe from the deposit you’ve provided.
Some examples of secured cards include a Capital One Platinum Secured Credit Card and OpenSky Secured Visa Credit Card.
Unsecured Credit Cards
An unsecured credit card is a regular card that doesn’t require collateral. Credit card issuers that offer unsecured cards usually perform hard credit checks and make approval decisions based on an applicant’s credit score. Although there are some options available to borrowers with bad credit, they need to be ready for stricter requirements. Some available unsecured card options include a “No Annual Fee” Visa Credit Card and Milestone Mastercard.
Where Can I Get a Loan with a 500 Credit Score?
Depending on the loan type, you can seek help from banks, credit unions, online lenders, and connecting companies. Additionally, you can use cash advance apps to access the needed amount with bad credit. However, make sure to understand how the app works before using it. Many of them offer products that are very similar to regular payday loans.
What Will Be Rates and Fees on a Loan for a Credit Score of 500 or Less?
When it comes to traditional loans, you can get an interest rate of up to 36% APR. Additionally, you may be charged extra fees for processing your loan. These costs are called origination fees. The fee can be between 1% and 5% of your approved loan amount. However, some lenders may charge up to 10% for loan processing or even set a flat fee. The sum will be deducted from your loan amount, and the remaining value will be transferred to your bank account.
If you’re going to get a bad credit card, an APR can be from 22% to 36%, depending on the card type and the issuer. Secured cards typically have lower interest and charge fewer fees. Additionally, some issuers may set variable rates to make their lines of credit cheaper. However, it always comes with the risk of rising costs under certain economic conditions.
Also, credit cards come with several extra charges, such as sign-up fees and annual fees, which can be up to $130. You can also be asked to pay for monthly maintenance. This fee typically accrues in the second year of using the card and is around $6 per month.
If you’re going to get a loan from an online lender, your interest rate will be even higher than those mentioned above. For example, a payday loan’s APR can be anywhere between 115% and 650%. A bad credit installment loan can have an APR of 16% to 100%. And don’t forget about origination fees!
More than that, lenders also set extra charges for late payments, which can be between $25 and $50. Some of them can also charge penalties for repaying the money early. This penalty can be about 2% of your loan balance.
How Long Does It Take to Raise Your Credit Score?
On average, you may need between 6 and 18 months to turn your 500 credit score into something about 700. However, everything depends on your financial behavior. In some cases, it may take you even several years, while some people manage to reach a “good” mark in a few months. The fact is that improving your credit is not an overnight process, so be patient and get ready to work on it permanently.
How to Rebuild My Credit Score Fast: Practical Tips
Improving your credit score always starts with changing your financial habits or financial behavior. It’s not enough to make an effort once. You need to work on it continuously to maintain a good rating. Below are some steps you need to take to raise your credit and keep it on a high level.
Fix Errors on Your Credit Reports
Check your Experian, TransUnion, and Equifax credit reports to make sure they contain accurate information. If you find any mistakes, contact a credit bureau and ask it to fix them. This way, you can boost your credit score by a few points.
Make On-Time Payments
Your payment history is 35% of your overall score, so you need to take it seriously. The payment history includes your bills, rent payment, existing loans, and valid credit cards. If you pay more than 30 days late, it will be displayed in your credit history, making your credit score go down. If you’re a punctual borrower, your payment history will be strong, positively affecting your credit score.
Keep Track of Your Credit Utilization Ratio
A credit utilization ratio is the amount of debt you owe in relation to the whole credit balance available to you. The higher the value, the worse, as it can be regarded as being in a difficult financial situation. To maintain good credit, try to retain your credit utilization below 30%.
Keep Your Old Credit Cards Open
When you keep your old accounts open, it can positively affect your credit mix and the length of your credit history. However, if you have some expensive credit cards, it may be better to close them.
Having a 500 credit score can make your financial life challenging, so we recommend you think about improving it as soon as possible. However, if you need a loan immediately, there are some options that you can access even with poor credit. Just keep in mind that bad credit goes hand in hand with higher interest rates and less favorable loan terms.