How to Get a Loan With a 500 Credit Score

Securing a Loan With a Credit Score of 500

A credit score of 500 and below is generally considered “poor” by most credit scoring models. If you’re in this category, your credit history likely includes some missed or late payments, high credit utilization, or other negative factors that make lenders view you as a higher-risk borrower. Unfortunately, that can make it harder for you to qualify for most loan products or secure favorable terms.

That said, a 500-credit score doesn’t mean you’re out of options altogether. Certain types of loans might still be accessible. There are also actions you take to increase your odds of approval for a loan.

In this guide, we’ll break down what a 500-credit score means for your loan eligibility, highlight some available borrowing options at this level, and offer actionable tips to boost your approval odds.

We’ll also share simple steps you can take to build better credit over time in order and unlock more and better borrowing options in the future.

What does a 500-credit score mean for loan eligibility?

Both FICO and VantageScore, the two most widely used credit scoring models, evaluate your credit score on a scale from 300 to 850. Within this range, scores are typically categorized into different tiers, which help lenders assess the level of risk associated with lending to a borrower.

Here are the respective tiers of each scoring model.

FICO Score Ranges

VantageScore Ranges

As you can see, with a credit score of 500, you fall into the “very poor” range in the FICO model and the “subprime” range in the VantageScore model. In both cases, it means that lenders consider you a high-risk borrower. This classification often results in challenges when applying for loans. Specifically, you may face:

• Fewer loan options: Some lenders may decline your loan application altogether.
• Higher interest rates: If approved, loans often come with higher interest rates to compensate for the lender's risk.
• Stricter requirements: You might need to provide additional collateral or provide a cosigner.

What types of loans can you get with a 500 score?

While a 500 credit score limits the number of loan options available to you, the good news is that there are still pathways to securing a loan. Here are some of your options.

Bad credit personal loans

Bad credit personal loans are specifically designed for borrowers who may not qualify for traditional loans due to poor credit. These loans are usually unsecured, meaning they don’t require collateral. However, because of the increased risk to lenders, interest rates are typically higher, and maximum loan amounts may be smaller.

Secured loans

This is a type of cash loan that requires you to pledge an asset, such as your car or home, as collateral. Because the lender’s risk is reduced, these loans can be easier to obtain, even with bad credit, and might also have more favorable interest rates. The major downside is that if you default on the loan, you risk losing the asset you’ve pledged as collateral.

Payday loans

Payday loans are short-term loans, usually for $1,000 or less, typically used to cover emergency expenses until your next payday. They are easily accessible, and many payday lenders do not check credit scores, making them an option for people with a 500 credit. However, payday loans come with a very high APR (300%-500%), usually in the form of fees. This can make them difficult to repay and lead to a cycle of debt if not handled carefully.

Due to their high costs, you should only use payday loans as a last resort.

Payday alternative loans

Payday Alternative Loans, or PALs, are offered by federal credit unions and are designed as a cheaper, safer, and more regulated alternative to payday loans. They typically have lower interest rates and longer repayment terms. They also include safeguards to protect you from getting trapped in a cycle of debt. For example, you can’t take out additional cash until the initial one is repaid.

Overall, PALs can be a good option if you need short-term cash but want to avoid the high costs of payday loans.

Home equity investments (HEIs)

If you own a home and have built equity, you might be able to borrow against this equity through a home equity loan or a home equity line of credit (HELOC). There’s just one issue — these products generally require a good credit score to qualify.

If your credit is not in the best shape, there’s another option and that is Home Equity Investment (HEI). With this product, you sell a portion of your home’s future equity to a lender or investor in exchange for immediate cash. There’s no monthly payment requirement — the investor makes their money when you sell or refinance the home by taking a share of the appreciated value. What’s more, a HEI has no minimum income requirements, so even people with poor credit can qualify.

Pawnshop loans

Pawnshop loans allow you to borrow money by offering a valuable item as collateral. The loan amount depends on the value of the pawned item (e.g., jewelry, electronics, or collectibles). No credit check is required, and loans are relatively quick to obtain. If you don’t repay the loan, the pawn shop keeps the item.

Strategies to improve approval chances

When applying for a personal loan with a 500-credit score, you're undoubtedly starting at a disadvantage. As we’ve seen, a low credit score puts you in a weaker position with lenders, who often see it as an indicator of financial risk.

However, this doesn’t mean securing a loan is out of reach. Remember, lenders consider more than just your credit score when evaluating your loan application. With the following strategies, you can strengthen your application and improve your chances of approval, even with a less-than-ideal credit score.

Offer collateral

One effective way to increase your chances of loan approval is by offering collateral even if that is not their standard approach — i.e. requiring borrowers to provide collateral.

Providing the lender with an asset to secure the loan may make them more willing to approve your application. Since the lender now has a way to recover their funds if you default on the loan, they may be more willing to approve your application. Just make sure you’re comfortable with the possibility of losing the item if you're unable to repay the loan.

Apply with a co-signer

Applying for a loan with a co-signer can significantly increase your approval chances. A co-signer agrees to take on the responsibility of repaying the loan if you default, providing the lender with additional security. This can make lenders feel more confident about approving your application.

Focus on specialized lenders

Certain lenders cater specifically to borrowers who have low credit scores, including those around 500. The main downside however is that these loans often come with higher rates and fees. If you choose to go with these lenders, make sure to shop around and compare a variety of options to boost your odds of getting the best possible deal.

How to improve your 500-credit score

Having a 500-credit score is not a deal-breaker when it comes to getting a loan, but it can make things a tad bit difficult as we’ve seen.

If you want to increase your borrowing options and possibly secure more favorable rates in the future, improving your credit score should be a priority. Here are steps you can take to work toward a healthier score.

Pay your bills on time

Your payment history is the most important factor affecting your credit score. Even a few late or missed payments can drastically lower your score, so it’s essential to prioritize paying all your bills on time. To make this easier, consider setting up automatic payments.

Maintain a low credit utilization ratio

Your credit utilization ratio also plays a crucial role in your credit score.

A high credit utilization ratio can lower your score, even if you’ve never missed a payment. A good rule of thumb if you want to have a healthy score is to keep your utilization ratio below 30%. For example, if your credit limit is $10,000, don’t use more than $3,000 at any given time.

However, for the best possible results, experts recommend keeping it around 10% or less.

Correct errors on your credit report

It’s not uncommon for credit reporting bureaus to make errors when compiling your credit information and calculating your score — such as indicating a payment you made on time as late or even missed.

In fact, a survey by Consumer Reports and WorkMoney found that 44% of Americans found at least one error in their credit reports, with 27% of these being serious mistakes related to debt.

These errors can unfairly lower your credit score. Make a habit of ordering copies of your credit report from all three major credit reporting bureaus regularly and checking for inaccuracies. If you spot any discrepancies, take immediate action immediately by disputing them with the bureau and lender responsible.

Consider a secured credit card

If you're working to rebuild your credit or have a limited credit history, a secured credit card can be a useful tool. With a secured card, you provide a refundable deposit as collateral. This also serves as your credit limit.

You then use the card as you would a regular credit card, making monthly payments on your balance. Importantly, the issuer reports your payment activity to the credit bureaus. By using the card responsibly and making payments on time, you can steadily improve your credit score over time.

Take out a credit-builder loan

Credit builder loans are a special type of installment loans designed for people with bad credit or no credit history. However, unlike regular loans, the lender doesn’t immediately disburse the money to you. Rather, they put it in a savings account or a certificate of deposit, where it can be earning interest.

You then make monthly payments just as you would with a standard loan. The lender reports these payments to credit bureaus, helping to establish or improve your credit score.

At the end of the loan term and if you’ve made all your payments on time, the lender releases the funds to you.

Build a better financial future with RISE Credit

A 500-credit score falls within the "poor" category according to the ranges established by FICO and VantageScore, the two primary credit scoring models used by lenders.

Securing a loan with such a score can be difficult, but it's not impossible as we’ve seen. There are specific borrowing options that are still available to you and there are actions you can take to improve your chances of approval.

The most important thing is to continuously work on getting your credit score up. This will open doors to more and better borrowing options in the future. Use the tips we’ve highlighted to get started.

At RISE Credit, we are committed to helping you create a stronger, more secure financial future. We offer online loans with competitive rates and flexible terms, along with tools and resources to help you better manage your finances effectively and improve your credit score over time.

Contact us today to discuss your goals and explore the options we have to support your financial journey.