Your FICO credit score is a simple, three-digit number that has a giant impact on your access to financial services like home loans, car loans, and credit cards. If you have a good high credit score, you can expect lower interest rates on your loan options and larger lines of credit for credit cards.
If you have a low credit score, however, you will be faced with worse loan terms, including higher interest rates. Plus, there is a higher chance your loan and credit applications will be rejected. While a 550 credit score is not the best, it is in a gray area in terms of what you can access in terms of financial loans.
Have a score that’s around 550? Let’s take a look at what having an average credit score of 550 means for you and what you can do to improve your chances of accessing a good loan and getting your personal finances in better shape.
Is 550 a “Good” Credit Score?
In short, a 550 credit score is not “Good.” However, a 550 credit score is not horrible either. In other words: Having a 550 credit score is not the end of the world.
FICO scores can range anywhere from 350 to 800, with 800 being the best possible score you can achieve. A 550 score is somewhere right in the middle.
Unfortunately, this does not necessarily mean you are on par with the minimal score required by most credit unions.
Borrow up to $500 in minutes — 550 credit scores welcome.
The Average FICO Credit Score in the US
The average FICO credit score in America is 688. Typically, older generations tend to have higher credit scores compared to millennials. This shows that with time, your credit rating can increase, which we will discuss in more detail later.
This is good news if you are young and have unfavorable credit, as you have a long time ahead of you to right your wrongs and increase your credit score.
“Bad” vs. “Good” Credit Scores
Many sites have different criteria for what they consider to be a “Bad” or “Good” credit score. In general, any score above the 670-700 range is considered to be a fairly good credit score. The higher you go above this credit score range, your loan term and loan application acceptance rate can only increase.
In addition, a high FICO score puts you in a position to secure larger loan amounts. However, as you start falling below this threshold, your loan applications will get denied more frequently and you will likely pay higher interest rates.
How Your Credit Score Impacts Loan Options
The lines between a “Good” and “Bad” credit score are not as black and white as you may think. Each lender has their own criteria for the credit score they are looking for in their borrowers.
For example, compared to other lenders, banks tend to require a much higher credit score. On the other hand, certain personal loan lenders allow those with lower scores to have more access to their loans than other lenders might.
Unsurprisingly, different loans require different minimum credit scores. For example, you will need a fairly good credit score to get a mortgage loan or any other loan with a similar amount.
This is because lenders are loaning out big sums of money and want to be absolutely sure they can trust the borrower, which is one of the reasons they conduct hard inquiries.
Smaller loans like auto loans and boat loans will likely accept lower credit scores than mortgage lenders. Smaller personal loans may accept even lower credit scores, especially the smaller the loan sum is.
Within these types of loans, there are lenders that are willing to lend to those with lower scores, and there are those that will require you to have an “Excellent” credit score.
Let’s take a personal loan for example. As we mentioned, a bank will have much stricter standards and may require you to have a higher credit score than an online lender.
Large and established credit card companies and banks may also require a better score for their cards than online banks and other lenders. Small personal loans like payday loans are widely available to applicants with lower credit scores.
Overall, having a score of 550 is no reason to get into a mental rut about your finances. While your options are indeed more limited and you may end up paying more for your loan, you will still have access to some loans and credit cards.
While a 550 credit score is by no means great, it is decent enough to turn into a Good credit score—more on this later.
What You Can/Can’t Do With a 550 Credit Score
If you currently have a 550 credit rating and want to secure a loan or open a credit card account immediately, you won’t have enough time to adequately boost your score.
If you have less than 30 days or so before you need your money or access to quick credit, you will only be able to access certain loans or cards.
Here’s what you can and can’t expect based on your 550 credit score.
What You Can Do
- Apply for a loan with Possible: Possible is not a traditional lender. Our loans are available for those with lower credit scores. They are easier to pay off and have lower APRs than similar lenders. Our loans also help build your credit score, which we will cover more extensively later.
- Access payday loans: Payday loans are personal loans that are typically less than $500. Instead of making monthly payments, these loans are usually paid back over the next week or two and have very high APRs. These loans are arguably the most accessible financial service to those with low credit scores. Unfortunately, however, payday loans are part of a predatory industry that is known for trying to keep customers in a debt trap cycle.
- Apply for credit cards: While banks will want you to have higher credit scores for some of their credit cards, many lenders and credit card companies are willing to give you a credit card with a score of 550. Some examples include the Open Sky Secured Visa Credit Card and the Indigo Mastercard for “those with less than perfect credit.” While you will be able to open a credit card account with a low credit score, do not expect to qualify for the many cards with great rewards programs. Likewise, you may be required to pay annual fees or have a low credit limit for these cards.
What You Can’t Do
- Get mortgages or other large loan amounts: As we mentioned earlier, you should not expect to qualify for large loans, like a mortgage loan or auto loan, if you have a 550 credit score. According to data from Equifax, people with scores around 550 only make up around 2.5% of all home equity loans. Because lenders give borrowers such large sums of money, they want to be absolutely sure the borrower will be able to pay it back. Whether or not you think you could successfully pay it off, a 550 credit score still falls into the bad credit score category, so you are unlikely to secure a large loan amount.
- Get cheap insurance: Did you know many insurance agencies use reporting agencies like Experian, TransUnion, and Equifax to check your credit history? Data and research have shown a correlation between low credit scores and individuals filing insurance claims with their providers. The more claims filed, the worse it is for the insurance provider. Because of this, insurance agencies will charge higher insurance costs for those with a bad credit score to make up for the many claims that this group of people file. It may seem wrong, but that is how it works.
- Have a wide range of rental opportunities: Like insurance companies, many landlords will also check your credit. They will look at your credit score and your credit report to try to get more information to properly gauge what type of tenant you will be. If you have a poor credit score as a result of late payments or missed ones, your landlord will be more skeptical of your ability to make rent payments on time, or at all. A prospective landlord may even require you to provide a larger security deposit.
550 Credit Scores Welcome.
How to Improve a 550 Credit Score
Your credit score will not change overnight. Here are some of the best ways to work toward improving your credit rating over the long haul.
Possible Credit Builder Loan
At Possible, we offer an awesome product we call a “credit builder loan.” It is just what it sounds like. It is a small loan that helps to build your credit when you pay it off.
Most small loans are part of the payday loan industry that is extremely predatory. They gouge you with giant APRs and make you pay your money back within a week.
At Possible, we want to go against this injustice. Our loans are paid back in four weekly installments. Our APR is comparably low, and if you are struggling to make a payment, you can extend your payment up to 29 days right within our app.
We understand that having bad credit is difficult, and it is even harder to build it up if you’re in an unfavorable spot. This is why we offer our product to those with lower credit scores.
As you pay back our loans, your credit score will rise. We have helped so many of our customers financially while raising their credit scores at the same time.
If you need a loan or just want to raise your credit score, consider getting a loan with Possible. Download our app today and get started!
Apply for Secured Credit Cards
There are two types of debt: secured and unsecured. Unsecured credit card debt means that you don’t have to put up any collateral for the loan or line of credit. On the other hand, secured credit card debt means you need to put up collateral just in case you fail to pay the debt back.
If you default on your debt or can’t pay it back, your lender has the right to take whatever you used as collateral.
A secured card is safer for lenders, so they will be more willing to lend secured debt to those with slightly lower scores. Secured credit cards are one type of debt you will be able to get with a 550 credit score.
If you continually pay off this new credit card, your score will go up. Additionally, if your credit utilization rate is 30% or less, your score will go up, too.
Become an Authorized User
Credit cards and other accounts allow you to have “authorized users” on the account. Authorized users are people who can use the line of credit or other debt but are not necessarily liable for paying it back. Being an authorized user on an account that makes on-time payments is a great way to build your credit score.
If you are comfortable, ask a friend or family member to add you as an authorized user on one of their accounts, such as a specific credit card. Over time, as your friend or family member successfully pays off the debt, you will get credit for paying the debt back, as well.
You do not need to spend a single dollar or pay back any money, and your credit can still increase! Just be aware that as soon as the account for which you are an authorized user on closes, the positive effects of being an authorized user will vanish, and your score may go back down.
Pay Down Your Current Debt
One of the most surefire ways to boost your credit score is by paying off your outstanding debt. Think about it: a potential lender or card issuer will not want to see that you have an outstanding debt.
If you try to get a loan or credit card with outstanding debt, your next lender may be skeptical that you will be focused on paying their money back. This is factored into your credit score and can hurt it as a result.
Chances are, failing to pay off your current debt is the reason your score is low in the first place, or why you can’t seem to increase your score. Focus on paying off the smaller sums first, and then focus on the bigger ones. You may see your score get a boost, as a result.
Contact Your Lender
Did you know that your lender is not required to report your successful and unsuccessful payments to the credit bureau? This means that you may have been paying back your loan or your credit card perfectly and the credit bureaus have no idea. If your successful payments are not being reported, your credit score will not go up.
Check your credit report and credit history with the three credit bureaus (you can access a free credit score once a year through each bureau). If there are any gaps in your credit report and credit history and your lender has not been reporting your payments, reach out to your lender.
Kindly ask that they start reporting your successful payments so that your credit score can go up. Again, they are not required to do so, but more often than not they will be happy to report your recurring payments and payment history.
The Bottom Line
If your credit score is 550, fret not. You still have access to certain types of loans and credit cards.
Additionally, you are not at a point of needing full credit repair, but you can work toward boosting your score to Fair credit territory to unlock more financial freedom.
