Personal Loans

Personal loan with a 550 credit score: Will you be approved?

By
Tim Maxwell,
edited by
Meredith Mangan
Updated June 27, 2023, 4:29 p.m. ET
Bad credit borrower fills out a loan application online
Shutterstock

A personal loan is a versatile installment loan you can use to consolidate debt, fund a home renovation project, or for manyꦺ o൩ther purposes.

Generally, a credit score in the mid-600s or higher is needed to qualify for a personal loan. B⛦ut if your credit s🐽core is lower, you’re not necessarily out of luck. 

Some lenders work with borro⭕wers with less-than-stellar credit, so you may qualify for a personal loan with a 550 credit score. Here’s how:

What is the minimum credit score needed for a personal loan?

You’re most likely to get approved for a personal loa൲n with good or excellent credit — a 🦩good credit score is at least 670.

Still, many lenders will work with you if your credit falls in the mid-60💞0s, and a few will consider your loan application with a 550 credit score. Of course, the better your cr🎃edit is, the better your loan offers, meaning a lower interest rate and better terms.

Here is a general🍸 breakdown of the various credit score 𝓀ranges:

  • Excellent: 800 to 850
  • Very Good: 740-799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: Below 580

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

If your credit score is under 550, getting a personal loan may be difficult. But some lenders, such as Avant, will consider a 550 credit score. That said, many lenders offering perso﷽nal loans for bad credit borrowers require a credit score of at least 580.

Consider enlisting a cosigner with good credit to improve your chance of approval and lower your rate. Many personal loan lenders don’t allow cosigners, but some do.

If possible, take steps to improve your credit before applying for a personal loan. One of the best ways is to make consistent on-🏅time monthly payments and reduce your debt-to-income (DTI) ratio. We’ll detail several credit-building steps in a moment.

How credit scores affect personal loan rates

Your credit score significantly influences your personal loan interest rate. A high credit score demonstrates a history of timely payments and indicates a low risk of loan default to lenders. In turn, lenders are more likely to ꦿoffer you a low-interest rate♏.

For reference, here are average prequalified interest 🐻rates for borrowers using the Credible marketplace for personal loans.

Personal loan rates by credit score

The interest rate you receive mayꦿ be higher or lower than these figures, depe🥃nding on your credit score, DTI ratio, and other factors. 

Pros and cons of personal loans for bad credit

As with any credit product, it’s wise to weig🌠h the benefits and downside🔯s of personal loans for bad credit before proceeding.

Pros

  • Fast access to funds: Many lenders fund your account the same day or within one business day of when you apply.
  • Easy to apply: You can usually complete the loan application process entirely online. You’ll need to submit information about your income and employment as well as your requested loan amount and the purpose of the loan.
  • Flexible funds: You can use a personal loan for virtually any purpose, such as consolidating debt, funding a home renovation, or covering a large unexpected expense.

Cons

  • High-interest rates: Lenders offset their risk by charging higher interest rates to borrowers with bad credit. Even a slight rate increase can raise the overall cost of a bad credit personal loan by hundreds or even thousands of dollars.
  • Costly fees: Many lenders charge multiple fees that add to the cost of your loan. These may include origination fees, application fees, and prepayment penalties. 
  • May be secured: Some lenders require you to secure your loan with collateral, such as a savings account or vehicle. If you default on the loan, the lender could seize your collateral to recover its loss.

How to improve your credit score

If you don💛’t need the funds immediately, consider taking the steps below to improve your credit before applying for a personal loan. Boosting your credit can increase your odds of approval💛 and lower your interest rate.

  • Pay bills on time. One of the best ways to improve your credit is to make consistent on-time bill payments, as your payment history accounts for a whopping 35% of your FICO credit score. Bring any past-due accounts current as soon as possible and set up automatic payments to help prevent late payments in the future.
  • Request a credit increase. If you owe $500 on a credit card with a $1,000 credit limit, your credit utilization ratio is 50%. But if your credit limit increases to $1,500 and your balance stays the same, your credit utilization ratio becomes 33%. A lower credit utilization ratio can improve your credit score.
  • Dispute credit report errors. According to a , 1 in 5 consumers had an error on one of their credit reports from the three major credit reporting bureaus — Equifax, Experian, and TransUnion. Fortunately, 80% of those who filed disputes received a modification to their credit report.
  • Reduce your debt. Since high credit score balances can harm your credit, pay down debt to lower your credit utilization ratio. 
Important: The amount of debt you have divided by the amount of credit you have available to you is your credit utilization ratio. This ratio measures the percentage of available credit you’re using, and makes up 30% of your credit score.

What are some alternatives to personal loans if you have a 550 credit score?

Although personal loans provide quick access to funds, they’re not for everyone. Fortunate🐻ly, you have other options, including the following:

  • Borrow from friends or family: Asking relatives or close friends for financial help can be awkward. But the interest rate you agree to will likely be less than what you’d pay with most credit and loan products. Protect your relationship by drawing up a clear loan agreement that details the loan term and how frequently you’ll make payments. 
  • Use a credit card: Credit cards provide a line of credit that makes it easy to borrow when in a tight spot. But credit cards often have high-interest rates, averaging 20.09%, according to the most recent data from the Federal Reserve. Only consider this option if you can repay the funds before interest charges kick in (usually within one month).
  • Request a salary advance: A paycheck advance is a short-term loan that you repay with future earnings. If you have a stable job, your employer may be willing to grant an advance before your next paycheck. This is preferable to the exorbitant interest rates and fees associated with payday loans.