Getting a loan can be hard—and it’s even more difficult if you have a credit score of 500 or below. Traditional lenders rely heavily on credit scores to paint a picture of a potential borrower’s creditworthiness. At The Associates Home Loan of Florida, we believe people are more than just a credit score. That’s why we lend to individuals with a credit score of 500 or below—and individuals who have gone through a bankruptcy or a foreclosure. Here’s what you need to know about borrowing with poor credit.
What Is a Credit Score?
A credit score is a number that is assigned to an individual based on their credit history and which provides an idea of how risky it may be to lend to that person. A higher score indicates a low risk (meaning that the individual is likely to pay it back as per the terms of loan), whereas a lower score indicates a high risk.
You may have heard of FICO scores or of VantageScore 3.0. These are proprietary credit scores that many credit agencies use to determine whether someone is “creditworthy.”
The exact formula for determining a credit score is different for each agency, though we know that it takes into account one’s open credit lines, amount of debt, types of credit open (car loans, credit cards, mortgages, etc.), on-time or late payments, debt to credit ratio, and negative events such as bankruptcy. Because credit agencies have their own methods for determining a credit score, an individual may have different credit scores at the different agencies.
There are some things your credit score doesn’t include. For example, your credit score doesn’t show your employment history or your salary. A lender may ask you for this information, however, it’s not automatically included in your score. This is important to note because it can have an impact on which loans you may be eligible for and help you show that you have the means to pay back any given loan.
Borrowing Money with a Credit Score of 500 or Below
Both VantageScore and Fico view a score over 700 as good, whereas scores below 500 are seen as very poor. That means that individuals who fall into that “below 500” category will have a harder time securing credit, regardless of what it’s for. Most traditional lenders won’t lend to individuals who they consider to have poor or bad credit. Thankfully, some lenders recognize that people are more than just a credit score and offer bad credit loans to individuals who have poor credit.
While you can take steps to rebuild your credit, raising your credit score takes time. In addition, some “derogatory” marks on your credit like bankruptcy and foreclosure will remain on your report for years. If you’re in need of a new-to-you set of wheels or would like to consolidate your debt, you may not be able to wait before applying for a loan. While we encourage individuals to work on raising their credit score, we’re happy to discuss which loans are available to you based on your credit score and situation while you work on improving your score.
Bad Credit Loans
There are different types of bad credit loans depending on your needs and financial situation. For example, if you’re looking to take out a mortgage, you may be eligible for an FHA loan with a credit score of 500 and a 10% down payment. We work with our clients to determine which options may be best for them, including subprime loans and hard money loans.
At The Associates Home Loan of Florida, we support Floridians. We understand that life happens and we’re here to help you move forward and work towards that future you dreamed of. To learn about what credit options may be available to you—whether you have a credit score of 500 or below or not—give us a call or apply now.