With a credit score of 500, it is likely that your credit options will be limited. However, it is still possible to get a personal loan with a credit score of 500. There are online lenders who specifically work with borrowers with poor credit so they can obtain the funding they need in a pinch. It is crucial that you are aware that borrowing money with a lower credit score might be more costly than most loans.
Personal loans are unsecured loans, meaning the cash you borrow is not secured by any collateral. Unsecured loans pose a greater risk to lenders than secured ones which puts a higher priority on a good credit score to balance out the potential loss. Therefore, lenders who work with poor credit borrowers tend to charge higher interest rates to make up for the lack of collateral and proven creditworthiness.
The higher your credit score is, the lower interest rates you will be able to secure. With a credit score of 500, your interest rates on a personal loan will most likely be pretty steep, making the loan costly overall. The Fair Isaac Corporation, the creator of the FICO score, classifies its three-digit credit scores into the following categories:
800 – 850 → Excellent Credit
740 – 799 → Very Good Credit
670 – 739 → Good Credit
580 – 669 → Fair Credit
300 – 579 → Poor Credit
A credit score of 500 is poor and would likely only allow you to qualify for bad credit personal loans. If this is your only option, getting a bad credit loan may be the best solution but do your research carefully and make sure you can afford to pay the loan back on time before signing for the loan.
There are several things you can do to improve your credit score, so you have the ability to qualify for better interest rates in the future. We recommend improving your payment history, which accounts for 35% of your credit score’s calculation, by making on-time payments on all your credit cards and loans. Additionally, paying down the balance on all your credit cards can make a significant difference in your score by reducing your credit utilization rate. Once you’ve raised your credit score, you will have many more financial opportunities available to you.