Credit cards for a 550 credit score are hard to find but not impossible. A 550 credit score sits at the lower end of the spectrum limiting your options.
People with good credit tend to qualify for the best loans with the most favorable terms or cards with lucrative rewards and low interest rates. A 550 credit score is not good, in fact, it’s poor. This will make it difficult to get a personal loan or card but don’t lose hope yet. There are lenders who specialize in borrowers with poor credit.
Let’s go over what you can expect with a 550 score and how you can increase your chances of qualifying for the personal loan or card you want.
What kind of credit score is 550?
How bad is a 550 credit score? A score of 550 is considered deep subprime according to the Consumer Financial Protection Bureau. A subprime score is anything below 580. On the FICO scoring model, 550 falls in the Very Poor category.
So, is 550 a good credit score? Unfortunately, it is not. With a score in this range, you are likely to face significant hurdles when applying for cards or loans. This rating indicates to lenders that you’re a high-risk borrower who has a history of late or missed payments, defaults, or excessive debt levels.
According to Experian, only 16% of consumers have FICO scores in the Very Poor range. The national average credit score is 715, which falls squarely in the Good category.
Being in the “Very Poor” category means that it’ll be challenging to qualify for personal loans or cards that don’t require a security deposit. If you are approved, they will likely come with higher interest rates, lower borrowing limits, and stricter repayment terms. If you find yourself with a rating below 580 – FICO scores below 580 are considered Very Poor – you should prioritize repairing your score. Raise your rating and you’ll be able to access better financial products and favorable loan terms in the future.
How Your Credit Score Impacts Loan Options
Lenders use your rating to determine if you’re eligible for various financial products including personal loans. This three-digit number not only affects whether you will be approved or denied but also influences the loan terms and conditions you’ll receive. Essentially, your rating reflects your creditworthiness, indicating to lenders how likely you are to repay borrowed money.
A poor rating indicates that you are less likely to repay and so many lenders are wary of approving loan requests. Scores of 500-600 are less than ideal. If you have a score of 550, you’ll find it challenging to be approved. You’ll likely only qualify for a lower amount and will receive a higher interest rate or additional fees like an origination fee. This is because personal loan lenders perceive borrowers with unfavorable credit as high risk and compensate for this risk by imposing stricter loan conditions.
In contrast, lenders offer personal loans with favorable terms to people with good ratings since they are viewed as low risk.
“Bad” vs. “Good” Credit Scores
Credit scores range from 300-850. A FICO score above 670 is considered good. It indicates to lenders that they will get their money back. As a low risk investment, these borrowers can access a wider range of products with lower APRs and more favorable terms.
A FICO score below 580 is considered bad. It signals to lenders a history of debt and not paying bills on time, making it difficult to secure personal loans or cards at advantageous terms. The good news is, nothing is stagnant. You can change your FICO score with a little work.
Your rating is a reflection of your financial behavior. Lenders and financial institutions send information to the three major credit bureaus – Experian, Equifax, and TransUnion. The bureaus put this information in your report and then run it through various scoring models (like FICO) and scores come out the other end.
Having a bad score like 550 doesn’t mean you’re shut out from borrowing entirely, but it does mean you’ll pay higher interest rates and have more restrictive terms.
How to get a personal loan with bad credit
Securing a personal loan with a low rating can be tough, but it is indeed possible. Most lenders want a minimum score between 600 and 650 but not all. If you have a low rating, there are steps you can take to find lenders more likely to approve you.
Check your credit
Most lenders have a minimum credit score requirement. Start by checking your score so you know where you stand and only apply for loans where you’re above the minimum.
Do your research
Research more than one lender to find the best deal. Not all lenders have the same requirements or will offer the same repayment terms. Look for lenders with more lenient requirements. Find out about their terms, conditions, and APR too. Make sure to filter out any disreputable lenders.
Prequalify before you apply
Once you’ve narrowed down the list of lenders try to prequalify. Prequalifying does not guarantee you’ll be approved but it does give you an idea of your odds. It lets you see potential loan offers including your monthly payment, interest rate, fees, loan terms, and loan amounts all without impacting your score. This is because when you prequalify the lender will do a soft inquiry to check your finances. Only hard inquiries hurt your score. Prequalify and compare loan offers to find the best one for you and apply for that loan.
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Consider secured loans
If you don’t prequalify for any loans or the fees are too high, consider a secured loan. Secured personal loans require collateral like a house, car, or savings account. Your asset will be at risk if you default, but you are more likely to get a better interest rate and terms.
Try credit unions and local banks
Credit unions and local banks tend to have more flexible lending criteria compared to big banks. They might be more willing to take a holistic look at your finances and consider more than your score. It does help to have an existing relationship with a community institution.
Ask a family member or friend
A family member or friend may be willing to lend you money at a more favorable rate than a traditional lender. Make sure to put the loan agreement in writing and include what would happen if you fail to repay as promised so as to avoid any strained relationships.
Find a co-signer
Ask a trusted friend or family member with a solid rating to co-sign the loan with you. This can make it easier to qualify for a loan with good terms. The catch is they have to pay if you don’t.
More financial tips.
What credit card can I get with a 550 credit score?
A 550 credit score is bad but you do have options. Certain cards are designed with lower ratings in mind making them more accessible to everyone.
Secured credit cards
A secured credit card is your best bet if your score is poor. You will have to put down a security deposit – fully refundable – which becomes your limit. The security deposit serves as collateral in case you close your account without paying what you owe. Secured cards are easy to be approved for and are an effective tool for improving ratings, as many issuers report payments.
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Unsecured credit cards
Lots of people can’t afford a secured card. If that’s you, don’t worry, unsecured cards for poor scores do exist, though they come with higher interest rates and additional fees.
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Become an authorized user
Ask a family member or trusted friend to add you to their account as an authorized user. You can then use their card without having to apply. If they have a good score, being an authorized user can help boost your rating.
What you can get with a 550 credit score is limited; however, with responsible use of one of these cards, your rating could improve and you can move on to better products.
How credit scores affect loan rates
Your score plays a major role in determining the rates you qualify for. Lenders use your rating to assess how much of a risk you are. A higher rating means lower risk and more favorable rates. A lower one indicates higher risk and it can become very expensive to borrow money.
The average personal loan rate is 12.2%. If you have a good score, you can find APRs as low as 4.6%. If you have a bad score, you may be charged an APR of 36% plus additional fees. The lower your rating, the higher the rate you’ll pay and the more a loan will cost you.
How to improve your credit score
The best way to get loans and cards with low rates is to improve your score. There are a number of ways you can do this. Some steps work fast while others need more time. Apply a mixture of the following options and take advantage of products designed to help. Slowly but surely you’ll see your score rise.
Check your credit report for errors
Regularly review your report for inaccuracies or fraudulent activities. Dispute any errors you find directly with the credit bureaus. Correcting these mistakes can lead to an immediate improvement in your score. Get your score for free from PFM Verify and boost your approval chances with their financial tools.
Pay on time
You must pay your bills on time. Payment history is the most important factor in calculating your score. If you have past due accounts, bring them current and continue making timely payments. Set up automatic payments for recurring bills. Use StellarFi to get credit for on time rent, utility, and subscription payments.
Reduce debt balances
The amount you owe to creditors is the second biggest part of your score. Focus on paying down high balances, especially on cards. There is no benefit to carrying a balance. It’s best to keep your credit utilization rate below 30% and then pay the statement balance off in full each month. This way you’ll reduce the amount of debt you owe, raise your score, and avoid all interest charges.
Maintain old accounts
The longer your credit history, the higher your score. It’s best not to close old credit card accounts since this will lower your score and increase your utilization ratio. If your old account has a high annual fee or you’re concerned about going into debt, then closing it might be worth it.
Increase your credit mix
Having various accounts as in installment loans (personal loans, car loans, home equity loans) and revolving credit (cards) can positively affect your score. It shows lenders you can manage different types of borrowing responsibly. While a factor, it’s minor so don’t take on debt you can’t afford.
Apply sparingly
Continually applying can hurt your rating. This is because each application triggers a hard inquiry which causes your score to temporarily drop a few points. Submit applications only when you need to.
Open a secured card
A secured card typically is used as a stepping stone. Make a refundable deposit of $200 or more in exchange of a line of credit. Use the card to make small purchases and pay the bill in full each month. The issuer will report your payments so you can build a positive payment history. Don’t max out your card, pay on time, and you’ll see your score increase.
Take out a credit builder loan
Credit builder loans are small loans designed to help individuals improve their scores and save money at the same time. The money you borrow is held in an account while you make small monthly payments. Once the loan is paid off, the lender reports your positive payment history and you receive the loan amount. Brigit offers loans with monthly payments as low as $1.
Check your credit reports to understand your scores
Review of your reports from all three national credit bureaus: Equifax, Experian, and TransUnion. These reports show the raw data behind your rating. Use them to help pinpoint issues that keep your score from increasing. It could be that you have outstanding debt or late payments or are using too much of your limit. Familiarize yourself with their content so that you know what to correct and avoid in the future.
If you see any errors you can dispute them with each of the bureaus on their websites. Errors could be dragging your score down and may be a sign of identity theft so they are good to note and get rid of. Remember, each bureau may have slightly different information, so it’s important to check all three reports for a complete picture.
Bottom Line
It is possible to get a card or loan with a 550 credit score, but it will be challenging. Invest time in shopping around for lenders who will work with you and ensure you get the most competitive interest rates possible.
If you can’t find a lender, then improve your score a reapply in a few months. A low score can be discouraging but is not a permanent state. The more you work to improve it, the more likely you’ll qualify for better offers.
Talk to a nonprofit credit counselor for guidance. Try a debt management plan if you’re having trouble reducing your debt. Take a look at MoneyFor for more financial tips and tricks. There are endless ways to move from a poor score to a good one.
This content is general in nature and is provided for informational purposes only. MoneyFor is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through MoneyFor marketplace.
