What is a bad credit score for a personal loan?

If you’re looking for a personal loan with a credit score below 550, you’re probably going to run into some challenges. A FICO score that falls between 580 to 669 is considered fair; if you’re in this category, lenders will consider you a subprime borrower. Since your credit score isn’t ideal, you’ll likely receive a slightly higher rate on a personal loan — if you’re granted one at all — because you have a greater risk of default.

The process will be a lot more challenging if you’re working with a 450 credit score. The lowest FICO ranking, a score in the 300-to-579 range won’t impress lenders. Don’t be surprised if you have to put up collateral for a personal loan, if you’re approved for one at all.

Try not to become discouraged if your FICO score isn’t conducive to getting a competitive interest rate or a personal loan at all. You’re not alone in your credit struggle: 17% of people have a FICO score that falls between 300 to 579 and 20.2% have a score between 580 to 669, according to Experian. It’s important to remember the number reflected on your credit score today isn’t permanent, so use this as motivation to make positive changes that will give it a much-needed boost.

Getting a personal loan with a 600 credit score — or less — will likely require some creativity on your part. Using the traditional route, finding a lender willing to take a chance on you and scoring a competitive interest rate might not be possible, so here’s a few alternative ideas:

1. Find a co-signer

If a family member or friend with a good credit score and a solid financial standing is willing to co-sign your personal loan, this can be monumentally helpful. Essentially, a co-signer agrees to assume financial responsibility for the loan if you don’t keep up with payments, which provides peace of mind to lenders. Consequently, this can help you qualify for a loan you might not get on your own merit and score a lower interest rate.

Do note that if you miss payments, this will have a negative impact on your co-signer’s credit score, so don’t ask this favor unless you’re certain you can fulfill the obligation.

2. Shop around

It’s never wise to go with the first loan offer you receive, and this is especially true if your credit isn’t the best. Research lenders in your area as well as online — you may find that online lenders are a cheaper option, as they don’t have the overhead costs that brick-and-mortar banks do.

3. Consider secured loans

When you’re looking for a personal loan with a credit score of 550, using collateral can help your case. If you back your loan with assets a lender can seize if you default — i.e., your home or savings account — you’re considered a lower risk. This can help you qualify for a loan you otherwise wouldn’t get or secure a more competitive interest rate.

You should proceed with caution when taking this route, because you’ll have a high price to pay if you default on the loan.

Searching for a personal loan with a 520 credit score puts you in a vulnerable position. Predatory lenders know you might not have many available options, and they’re ready to take full advantage of your situation. Expect to be pressured into sales tactics that guide you toward sky-high interest rates and exorbitant fees you shouldn’t have to pay.

Here’s a few ways to avoid this type of lender:

1. Pay attention to the size of the loan

At first glance, being offered a secured loan that’s larger than the amount you expected might seem like something positive. However, this could actually be a tactic known as equity stripping. Shady lenders use this approach to get you to default on a loan, thus entitling them to your collateral. Avoid falling into this trap by carefully calculating the amount you can afford to borrow.

2. Take note of added fees

A predatory lender could tack on several additional charges to the loan that you don’t actually need. Referred to as packing, you might be told services like credit insurance are mandatory. Stay alert by carefully reviewing any added fees, researching them and speaking up when something doesn’t seem right.

3. Read the fine print on the interest rate

It’s not uncommon for predatory lenders to advertise one interest rate and produce another at closing. Honest lenders are always upfront about interest rates, so if you’re informed at the last minute that a loan you thought was fixed-rate is actually variable-rate or comes with a hidden balloon payment, do not proceed with this arrangement.

Improve your credit score for future personal loans

Trying to get a personal loan with a 450 credit score — or any number that falls in the very poor or fair range — isn’t ideal. In some cases, you might need the extra cash immediately, so delaying your application isn’t an option. However, if you can wait to apply for the loan, this will give you time to work toward improving your credit score.

Taking steps to lower your debt utilization rate, making all payments in full and on time each month and avoiding debt altogether will help improve your finances. As your credit score rises, so will your ability to get both a personal loan with attractive terms and a competitive interest rate.

You may be able to use the proceeds of a personal loan to pay the debt on multiple credit cards. Here are 5 reasons you might go this route.

5 pros of using a personal loan to pay off credit card debt

1. You can consolidate payments
Managing multiple credit card accounts is hard work. When you’re trying to keep track of too many cards, it’s easy to confuse payment deadlines or accidentally miss them altogether. Paying off multiple credit cards with a personal loan consolidates that debt into one monthly payment, meaning fewer bills to worry about.

2. You could lower your interest rate
There’s no guarantee, but you’ll likely be able to secure a lower interest rate on your personal loan than you were paying on your credit cards. Your interest rate is determined by factors including credit score, debt-to-income ratio, employment status and credit history. Every lender has different borrowing criteria, but generally speaking, a high credit score and a low debt-to-income ratio will help you get a more competitive interest rate.

3. Your monthly payment could go down
If you’re able to secure a lower interest rate on your personal loan, it will likely reduce the amount on your monthly payments. This will allow you to enjoy a little extra room in your budget.

4. You might boost your credit score
If much of your credit portfolio is consumed by revolving accounts, diversifying the mix by taking on a personal loan will likely improve your credit score, according to the credit bureau Experian. Making monthly payments on a timely basis showcases your ability to manage debt responsibly. In most cases, the increase will take time and won’t be monumental, but it’s a step in the right direction.

5. You more likely to pay off debt faster
If you’re making the minimum payment on a substantial credit card balance, you could be stuck with the debt for decades. On the other hand, most debt consolidation loans have a term of 24 to 60 months. This can allow you to pay off the debt in a fraction of the time.

5 cons of using a personal loan to pay off credit card debt

1. You might not qualify for a personal loan
Lenders don’t issue personal loans to just anyone. In most cases, you’ll need a minimum credit score of 525 to even have your loan application considered. Other factors that will be taken into consideration include your debt-to-income ratio, employment status and credit history.

2. You may continue to rack up debt
Technically speaking, paying off your credit card balances with a personal loan frees up space to start racking up charges again. If you don’t completely trust yourself to cut ties with the plastic, it might not be wise to put the temptation out there. After all, debt consolidation is supposed to help improve your finances, not make them worse.

3. You might not get a lower interest rate
Personal loan interest rates are largely based on your credit score. Generally speaking, most rates fall between 5.99% to 35.99%. It’s possible your credit card interest rate will be lower than the rate you’re offered for a personal loan. In this case, it wouldn’t make sense to proceed with debt consolidation.

4. Your monthly payment could increase
You pay for it with interest, but credit cards offer more repayment flexibility than personal loans. Since the latter is typically attached to a repayment period of 24 to 60 months, it’s possible you’ll end up with a higher monthly payment. If you don’t have a lot of extra room in your budget, this could be difficult to handle. The last thing you want is to default on the personal loan that was supposed to be getting you out of debt.

5. The loan might come with fees
Some lenders charge an origination fee, which is tacked on to your personal loan. In most cases, the fee costs 1% to 6% of the total loan amount. For example, if you had a $5,000 loan with a 2% origination fee, you would have to pay $100 upfront. Therefore, it’s possible the personal loan could be more expensive than your credit cards, even if you’re able to secure a lower interest rate.

Shopping around to find the best offer for a personal loan is a must. MagnifyMoney offers a personal loan marketplace that allows you to quickly identify lenders that might meet your needs. You can personalize results by filtering for your credit score, desired loan amount and ZIP code.

What to consider as you review personal loan offers

When comparison shopping for a personal loan, take these key factors into account:

• APR: Personal loan rates typically fall between 5.99% to 35.99%. The rate you’re offered directly impacts your monthly payment and the overall interest you’ll pay on the loan.
• Term length: Most personal loans come with a term length of 24 to 60 months, which is the amount of time you’ll have to pay the balance off in full.
• Fees: Some lenders tack on additional fees to personal loans, including origination fees and prepayment penalties. These can increase the total cost of the loan.
• Loan amount: Personal loans are generally available in sums ranging from $1,000 to $35,000. However, not all lenders are able to approve the amount of money you might need.

APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

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Taking out a personal loan to pay off credit card balances isn’t the only way to get out of debt.

If you don’t qualify for a personal loan or are unable to find one that meets your needs, here’s a few other options to consider.

1. Balance transfer credit card

A balance transfer allows you to shift your debt from a high interest credit card to one with a more competitive rate if you qualify. Many credit card companies even offer a 0% introductory APR, making it possible for you to pay less interest or none at all for a period of time, so you can pay your balance down faster. The MagnifyMoney balance transfer card marketplace can help you comparison shop to find the right credit card for your needs.

Pros

• If you get a new card with an intro 0% APR and pay it off in full during the promotional period, you can eliminate all interest charges.
• Your new card might have better perks than the old one.
• It might be possible to get a card with $0 intro balance fees, making it possible to save even more money.
• There’s no prepayment penalty.

Cons

• In most cases, you’ll need good or excellent credit — often a 700 minimum credit score — to qualify for the most competitive offers.
• You’re unable to transfer balances between the same credit card issuer.
• Cards often come with a transfer fee, which is usually 3% of the total balance transferred.
• If you don’t pay the balance in full during the introductory period, you could face a higher APR than you were paying on your old card.

2. Home equity line of credit

A home equity line of credit, commonly known as a HELOC, allows you to borrow against the equity in your home. Equity is the difference between what the home is worth and the outstanding debt on it. For example, if your property is valued at $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. Most lenders will allow you to borrow up to 85% of the current value of your home.

Pros

• Borrow as much or as little as you need, up to your limit.
• Repay only the amount used.
• Interest rates are typically lower than credit cards and personal loans.

Cons

• Interest rates are generally variable, which could cause your monthly payment to fluctuate.
• You could be subject to annual fees, maintenance fees, transaction fees and closing costs.
• Some lenders have a minimum borrowing or withdrawal amount.
• If you fall behind on payments, you could lose your home.

3. Borrowing from a friend or family member

Nearly three in four Americans have borrowed money from a relative at some point in their lives, according to a survey from LendingTree, which owns MagnifyMoney. Unfortunately, more than one-quarter experienced negative consequences from the transaction. If you take this route, create a contract outlining the loan length, monthly payments and other terms, such as interest.

Pros

• No credit check is involved, which is advantageous if your score isn’t the best.
• If you have to pay interest, you’ll likely get a more competitive rate than would be offered by a traditional lender.
• You won’t have to spend time comparison shopping for loans.

Cons

• Missing payments could permanently damage your bond with a loved one.
• Owing a friend or family member money might change the dynamic of your relationship.
• Tensions could arise if the person needs the money before the expected loan payoff date.

In many cases, using a personal loan to pay off credit card balances is a wise move, but not always. Ask yourself these questions to make sure this it’s the right choice for your unique situation.

The bottom line

Most Americans carrying a credit card balance — 77% — don’t realize they can take out a personal loan to pay down their debt, according to Marcus by Goldman Sachs. This can be a savvy way to get a handle on your credit card debt, and finally pay it off for good. When shopping around for a personal loan, take the time to compare multiple offers and carefully review all terms and conditions, to make sure you’re making the best choice for your finances.