How To Get A Personal Loan With Bad Credit (400 - 599)

What Is Considered Poor or Bad Credit?

A credit score between 400-599 is considered poor credit by most lenders.

The FICO scoring range is from 300-850 and is divided into the following categories.

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very Good
• 800-850: Exceptional

Does that mean you can’t get a personal loan or a credit card if you have a score under 600? Heck no! You can definitely be approved for credit cards and personal loans.

The real difficulty in navigating the lending/financing world with bad credit is to determine which lender is going to give you the best deal.

I’m here to educate you on this topic, so if you’re in the bad credit boat looking for a personal loan, read on!

Pros and Cons Of A Bad Credit Personal Loan

Pros:

1. Easier access to funds: A bad credit personal loan can provide access to funds that may not be available to you through traditional lenders.
2. Improves credit score: Making timely payments on a bad credit personal loan can help to improve your credit score.
3. Flexible repayment terms: Many bad credit personal loan lenders offer flexible repayment terms, which can make it easier to meet your financial obligations.

Cons:

1. Higher interest rates: Because of the risk involved, bad credit personal loans typically have higher interest rates than traditional loans.
2. Additional fees: Bad credit personal loan lenders may charge additional fees, such as origination fees, application fees, and late payment fees.
3. Limited loan amount: Bad credit personal loans typically have lower loan amounts than traditional loans.

How Much Money Can You Qualify For With Bad Credit?

While some lenders offer up to $50,000, that’s nowhere near the average maximum, which is about $10,000 for unsecured personal loans.

Just for fun, and because we love lists, here are the 10 most popular loan amount requests.

1. $1,000
2. $2,000
3. $3,000
4. $4,000
5. $5,000
6. $6,000
7. $7,000
8. $8,000
9. $9,000
10. $10,000

How Many People In America Have Bad Credit?

According to the Experian 2021 State of Credit report, it’s estimated that nearly one in five Americans have a credit score of 600 or lower, so, essentially 20% of all Americans have bad credit - YIKES!

The Experian report also suggests that the credit score of Americans has been steadily declining since 2018.

We recently released an article detailing American Credit Score Statistics and while we didn’t note a decline like Experian is reporting, as average score did in fact go up in the last 2 years, the Experian report was using < 2020 data, where we were using 2021 data.

That being said, Experian is one of 3 major credit bureaus so I would certainly factor their analysis as valid.

Top 9 Reasons People Have Bad Credit

No longer is bad credit relegated to simply missing payments, it goes well beyond that now. You can not miss a single payment for 2 years and still have bad credit!

A great example of this is for people that have a bankruptcy on file, only 2 years of credit history and their single credit card is “maxed out”.

With that mix you’d be lucky to have a score above 600.

Here are the top 9 reasons people have bad credit

1. Missed payments: It probably goes without saying that if you miss payments, even one, it will dramatically affect your credit score.
   
   Miss multiple payments, or default entirely and you can kiss your good credit goodbye for years.
   
2. Maxing out your credit cards: Using too much of your available credit on your credit cards is a massive red flag to lenders.
   
   I know, it seems weird that you can be given $5,000 on a credit card but if you utilize the entire amount you’re penalized, but that’s how it works.
   
   If you’re using more than 20% of your credit (this is called credit utilization, btw) it looks like you’re getting in over your head.
   
   Whether that’s true to your financial condition or not, lenders hate it. They want to know you have credit available, use a little bit of it, but never need all of it.
   
   If you want good credit, unfortunately you have to play the game. And look at the bright side, credit card debt is the last kind of debt you want to carry!
   
3. Ignoring past due bills: Ignoring bills that are past due (aka “late”) is not advised, but happens frequently enough to make it near the top of this list.
   
   It’s understandable, most past due bills are for unexpected expenses (i.e. Medical) and those can be incredibly expensive and difficult to pay.
   
   Rather than ignoring this debt, though, you need to be proactive. Contact the issuer and see if they can set you up on a payment plan so you can avoid default (very bad!) and if you’re lucky, completely avoid a negative report on your credit.
   
   If you’re already in this position, try to contact the issuer before it defaults to collection. Once your debt is in collections it’s game over.
   
4. Not checking your credit report: This might seem kind of hokey and self-serving since credit bureaus can make money charging you for a credit report, but there’s a free workaround.
   
   a.) AnnualCreditReport.com gives you a free credit report every year (it’s a Federal website)
   
   b.) Free Vantage 3.0 credit monitoring services like CreditKarma or FICO-based credit monitoring services from your bank can keep you up-to-date on your credit report and score, including any changes.
   
   Credit monitoring tools are must-haves in our opinion. Plus, many are free!
   
5. Too many applications for credit: Even I’m guilty of this and I have amazing credit. I have an addiction to credit cards. I want all of them, high limits, platinum, titanium - whatever.
   
   To me, credit cards are like badges you win in games! (Joking!)
   
   But, in all seriousness, these “hard pulls”, not just new lenders/accounts on file, do impact your score.
   
   Does it impact it heavily? That’s up for debate. According to CreditKarma it has low impact, and truthfully, I’ve only ever seen a few points drop on hard pulls.
   
   Does it look bad? Sure, I can see how applying for a bunch of credit can look desperate, but to me, credit is a tool, and I would personally rather have it than not.
   
   The way I see it, I’ll take the short-term hard pulls if it gives me leverage later on.
   
   In 2 years those hard pulls will drop from a credit score and I’ll have far more available credit, which will only improve my overall score (thanks to low utilization, of course)
   
6. Not using credit cards: Not utilizing credit cards at all can actually hurt your score. It seems silly, but sadly, that’s how Ye Olde FICO score works.
   
   If you’re not using your credit lenders believe that you’re just waiting in the shadows to strike. “Hey, this guys got $100k in credit he hasn’t used in over a year. I bet he’s just waiting to charge $100k and skip town!” - that’s what I imagine anyway.
   
   Either way, the point is this. If you can utilize 2% - 5% of your credit on a revolving basis it’s deemed the sweet spot. I don’t make the rules, this is just what I’ve read (and learned) over the many decades I’ve been obsessed with credit. YMMV.
   
7. Having a high credit utilization ratio: I’m pretty sure I’ve explained this above, however, it always bears repeating. Do not use over 20% of your credit card and let it roll into credit reporting.
   
   Every month on a specific date (according to your terms) the credit card issuer will report your account balance to the credit bureaus. Absolutely do NOT carry a balance higher than 20% of total credit limit or you will see your score drop.
   
   Good Example: $10,000 credit limit. $2,000 unpaid balance.
   Bad Example: $10,000 credit limit. $2,500 unpaid balance.
   
8. Closing old accounts: I learned this the HARD way decades ago. When you close, or your accounts are closed due to payoff, they drop from your credit score like they never happened.
   
   Personally, I believe this is probably the most unfair credit practice next to not getting credit for paying rent, but again, I don’t make the rules.
   
   If you pay off an account, such as a loan, it will drop from your credit report and you average age of credit will shorten.
   
   Thankfully, credit cards don’t work this way, so you can control this by simply not closing your account, but for typical loans, such as auto or mortgage, you have a tough decision to make on repayment if it’s your oldest credit account on record.
   
   Seriously, someone should fix this. It’s painful to watch 10 year old loans drop from “Active” in your credit report and see your average credit age go from 12 years to 4 years.
   
9. Filing for bankruptcy: Bankruptcy will absolutely, without question, demolish your credit score. However, what people won’t tell you, and I will definitely be writing a future article on, is that you can very, very quickly build your credit score back up into the 700 range.
   
   IMO, bankruptcy has a dramatic, but short-lived effect. The world of credit is still very open to you for one simple reason: banks know you can’t file bankruptcy again for 7 more years!

Can You Get a Personal Loan If You're From Another Country?

I’ve included this question because it’s both common, and because some people believe it’s a loophole. “Oh, I can just go to Canada and get a personal loan and never pay it!” - not so fast, sport.

While technically you can get personal loans as a foreigner, it comes with a TON of strings and formalities. Let’s just call them hoops & penalties.

What do I mean by that?

Well, for hoops you get to give extremely detailed financial information to the lender. The higher the amount requested, the more scrutiny you’re under.

And then, IF, and it’s a huge IF, you get the loan, the conditions are typically bad, bordering on predatory.

Basically, if you want a $5,000 unsecured loan with 45% APR then, yeah, you can probably get it from a lender, but there are better alternatives.

Applying For A Personal Loan With Bad Credit

As long as you understand the APR is typically 20% - 45% and that the maximum amount is somewhere around $10,000, the application process doesn’t really differ from bad credit to good credit, other than the approval process.

All borrowers have to give financial statements of some kind (usually 60 to 90 days of bank statements) and then it’s up to the underwriting department to request other details, or approve/decline the loan.

Applying isn’t the difficult part, it’s finding a lender that will give you the best possible rate for your credit profile.

This is why we work with partners that specialize across all credit ranges, so when/if you’re ready to apply for a loan, you can do that right in our Loans section of the site.

Top 10 Banks That Give Personal Loans to People With Bad Credit

This is by no means a definitive list as there are hundreds of banks that offer personal loans to people with bad credit, both secured and unsecured. However, lists are fun, so we’re including it anyway!

1. Avant: Avant offers personal loans of up to $35,000 and can approve applicants with a credit score as low as 580.
2. Marcus by Goldman Sachs: Marcus by Goldman Sachs offers personal loans with no fees and no prepayment penalties. They can approve applicants with a credit score as low as 660.
3. Citi: Citi offers personal loans of up to $50,000 and can approve applicants with a credit score as low as 660.
4. Wells Fargo: Wells Fargo offers personal loans of up to $100,000 and can approve applicants with a credit score as low as 640.
5. OneMain Financial: OneMain Financial offers personal loans of up to $20,000 and can approve applicants with a credit score as low as 600.
6. Upstart: Upstart offers personal loans of up to $50,000 and can approve applicants with a credit score as low as 620.
7. LendingClub: LendingClub offers personal loans of up to $40,000 and can approve applicants with a credit score as low as 600.
8. Discover: Discover offers personal loans of up to $35,000 and can approve applicants with a credit score as low as 660.
9. Citizens Bank: Citizens Bank offers personal loans of up to $50,000 and can approve applicants with a credit score as low as 660.
10. TD Bank: TD Bank offers personal loans of up to $50,000 and can approve applicants with a credit score as low as 640.