Having a credit score of 500 can make it difficult to get a loan, but it is not impossible. There are several different types of loans available to those with lower credit scores, such as FHA loans, VA loans, and USDA loans. FHA loans have the lowest credit rating requirements of any major mortgage loan program and may be easier to obtain. VA loans do not have risk-based pricing and can offer rates similar to those of high-credit borrowers.
USDA loans are available to those with lower incomes, but the household income cannot be more than 115 percent of the median household income in the area. Conventional loans are also available to lower-credit applicants, but their fees often mean that FHA loans cost less for borrowers with poor credit ratings. Alternative lenders, such as payday lenders, may not consider your credit score at all, but may charge very high fees and interest rates. Home and vehicle refinance loans are secured by the underlying property and can be available at favorable rates to consumers with poor credit ratings.
Prepaid cards don't report your payment behaviors to credit bureaus, so they can't be used to establish or increase your credit rating. You may also be able to ask a creditor for a “goodwill” adjustment to remove a late payment from your credit report. Increasing your score to the right range (580-660) could help you gain access to more credit options, lower interest rates, and reduced fees and terms. You can start taking steps to increase your credit by becoming familiar with your credit report and its content.
Credit cards available to those with low credit scores between 500 and 550 will usually be unsecured credit cards with low limits and high APRs, secured credit cards that require a deposit, or closed-loop store credit cards that can only be used at a particular retailer.
