If you’ve tried to apply for a loan with a 450 credit score in the past, you may have found yourself declined wherever you turned. Perhaps the lender explained to you why they turned you down; perhaps they didn’t. Regardless, it’s not uncommon at all for people to find themselves being consistently denied a loan when their credit score is low.
But why is this the case? Most people assume that those with a low credit score also have a low income. That would make sense – if you don’t have the money to pay off your debts, shouldn’t it also mean that you won’t be extended a high degree of credit to use?
There’s only one problem – this isn’t the case at all.
A recent study by the Federal Reserve showed that there is a low correlation between income and credit scores. Breaking down the data into high, mid, and low-income brackets, the study found that even amongst people with high income, only around 15% enjoyed a Vantage score between 850 and 900. That ratio was the same for people in both the mid and low-income ranges.
So if the amount of money you make doesn’t play a big role in calculating credit, then what’s the big deal?
In this post, we’ll discuss why a low credit score can impact your ability to find loans, and outline some options you can use to get a personal loan with your low score.
Credit Scores Correlate Risk, Not Your Ability to Pay
As we discussed above, the data in the Fed’s study revealed that higher incomes do not automatically mean higher credit score. It also validates another important point about credit scores – making more money will not automatically raise your score or get you approved for a loan.
So what’s the point of a credit score then?
One thing to clarify first: lenders will look at your income before they approve you for a loan. It’s reasonable – if you wanted to receive a $100,000 loan, spread out over five years, that would mean you’d need to pay about $1,667 each month. If you can’t afford your minimum payments, then it doesn’t matter how good or bad your credit score is.
But what matters much more to a lender is how much risk you present when they lend you money. This is where your credit score comes into play. The biggest factor of the five used to calculate your score is your financial history. Your financial history is an overview of how many debts you’ve had over the years, and if you ever had any late or missed payments.
Even if you make over six figures a year in income if you don’t pay your debts on time, or don’t pay them off at all, all that money won’t do you, or your lender, any good. This means lenders won’t want to work with you. A person who only makes $30,000 a year, but pays their debts on time, is a much safer investment than the person with a six-figure salary who’s always behind in their payments.
In short – credit scores indicate your overall level of risk to a creditor or lender. This has nothing to do with income; it’s all about how much trust can be placed in you to repay your debts, on time, and in full. Knowing this, it makes much more sense why, whether you’re rich or poor, a credit score of 600 or below makes you a much riskier investment for lenders.
How Can I get a Loan with my Low Credit Score?
I may have painted a bleak picture with the last section, but don’t lose hope – there are some great options to get a 450 credit score personal loan. What’s most important is that you look for the same factors that will give you a great loan, regardless of your credit score.
When you shop for a loan, these are the most important factors that you need to analyze:
- The amount the lender is willing to extend to you
- The interest rate
- The time you’ll have to pay back the loan
- How much your minimum payments will be
- How long it will take for you to receive the money
These factors don’t change whether you’re dealing with a credit score of 450, a credit score of 550, or even if your credit score is close to 800. If the loan doesn’t give you what you need to achieve what you want, then that isn’t the lender you want to work with.
For this reason, it’s critical that you shop different lenders, and compare these factors between them, to find the loan that will work for you. You need to ensure that you can feasibly pay back your loan in a reasonable amount of time. This can be difficult, however. After all – you’ve probably already experienced difficulty in finding a loan because of your score. You might think I’m crazy for suggesting that you turn down anyone who’s willing to work with you at this point.
But here’s the reality – there are plenty of predatory lenders who will try to take advantage of your circumstances, and are ready to work with you regardless of your score. But don’t be fooled – these people are no saints. These lenders will often offer you what is referred to as a “payday loan’ or ‘title loan.’
These types of loans carry ridiculously high-interest rates, as much as 4,000%, and are often required to be paid back by the time your next paycheck rolls around, hence the name, ‘payday loans.’ These sorts of loans will trap you in an endless cycle of debt, that will have you only paying off the interest, not the principle. This will leave you worse off than when you started.
At Loans Now, we tailor our business to those struggling to find a quality loan because of their low score. Our specialty is personal loans for people with bad credit. Using our partnerships with reputable, quality lenders, we will do the legwork for you to present different lending options, matched against your current circumstances, that you can compare. This will save you time, and help ensure that you get the best loan possible.
We understand that you’re more than just a number on a credit report, and we believe that you shouldn’t be unable to receive the money you need because of past mistakes. Everyone deserves a second chance, and Loans Now is here to give you that chance.