How to Get a Loan with a 400 Credit Score
Your credit score is one of the first things lenders look at when deciding whether to loan you money. Therefore, the better your credit score, the more likely you are to get a loan with favorable terms and rates.
If you have a credit score in the 400s, getting a loan can be challenging. A 300 is the lowest possible credit score, and 400 is much closer to that end of the spectrum than to the top, which is 850.
How your credit score is determined
When people refer to credit scores, they’re usually talking about the FICO credit score. FICO credit scores are rated on a scale from 300 to 850, with 300 being the worst and 850 being the best. Here are some of the factors FICO uses when determining your credit score:
Payment history
Your ability to repay your debts is the main factor FICO uses to determine your credit score. You’re more likely to have a good credit score if you have a history of making on-time monthly payments on credit accounts like your student loans, credit cards, and mortgage. Conversely, your credit score can drop quickly if you’re late on these payments.
Current debts
Another important factor is how much debt you have versus how much credit you have available. With credit cards, for example, you have a set amount of credit available. This is commonly referred to as your “credit limit.” If you constantly max out your credit before paying some of it down, your credit score will suffer.
How long you’ve had credit
Your credit history begins the first time you open a line of credit. That could be with a credit card, a personal loan, student loan, or other forms of debt. The longer you’ve been using credit, the more positive impact it will have on your score. Unless, of course, you have a history of late payments, in which case a lengthy credit history won’t help as much.
Credit mix
Having a variety of credit can help boost your credit score. Different types of credit include credit cards, lines of credit, personal loans, mortgages, and student loans. However, you should be in good standing with all your credit accounts, or variety won’t matter.
Recent credit activity
There’s nothing wrong with opening a new credit account every now and then. Opening too many accounts in a short time, however, can hurt your credit score.
Loans for 400 credit score borrowers
Your loan options will be limited if you have a credit score in the 400s. With that in mind, here are a few loans that might be available:
Personal loans
Qualifying for a personal loan with a poor credit score depends entirely on the lender. Traditional lenders like banks and credit unions are unlikely to approve you for any type of personal loan.
On the other hand, direct lenders may approve you for certain types of personal loans despite your credit score. Instead of relying solely on your credit score, many direct lenders — including Advance America — consider other factors like your income, employment history, and your ability to repay.
Here are some of the online loan options that may be available to you from a 400 credit score personal loan direct lender:
➢RELATED: Direct Lenders for Bad Credit
Credit card loans
Having a credit score in the 400s doesn't disqualify you from getting a credit card, but your card will likely come with higher interest rates and lower credit limits compared to someone with a better score.
Another option is applying for a secured credit card. These cards require a cash deposit to ensure the issuer gets paid if you can't repay your debt. Secured credit cards are readily available and a good way to build your credit.
Auto loans
The odds of securing an auto loan if you have a 400 credit score are slim. Lenders typically consider the risk too high. In many cases, you’ll need to make a down payment on the car and show proof of income. Even then, your loan will likely have steep interest rates.
Student loans
The one type of loan you can always bank on is the student loan. This is mostly because the vast majority of student loan borrowers are young people with little to no established credit history. However, lenders expect you to only use the funds to cover tuition, textbooks, school supplies, and college-related living expenses.
Secured loans
If you don't qualify for any other type of loan, consider a secured personal loan. These loans require collateral, such as jewelry or a vehicle title.
With any secured loan, remember that you risk losing your collateral if you fail to repay the loan as agreed. Additionally, secured loans usually don't help build your credit because most lenders who offer them don't report to credit bureaus. If your goal is to improve your credit, choose a secured credit-building loan.
How loans work for borrowers with poor credit
While having poor credit limits your personal loan options, it doesn't mean you’re out of opportunities. Although loans for borrowers in the 400 credit score range may come with higher interest rates, shorter repayment periods, and stringent terms, there are still viable options available to meet your needs.
For instance, you could enlist the help of a co-signer with a good credit score to give you the credit boost you need. It’s important to note, though, that if you default on a co-signed loan, your co-signer becomes liable for repayment. If a friend or relative co-signs for you and ends up having to repay the loan, it could strain your relationship. You should always be cautious when asking someone to co-sign a loan and make every effort to repay what you owe on time.
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Is a 400 credit score good?
The short answer is no; a 400 credit score is not good. Credit scores are measured on a scale of 300 to 850. The higher your score, the better. A score of 400 falls near the bottom of the scale, making it one of the lowest credit scores possible.
Can I get a loan with a 450 credit score?
Raising your credit score from 400 to 450 might improve your chances of qualifying for a loan, but it depends on the specific lender's criteria. Generally, a credit score of 450 is still considered very poor, and many traditional lenders may have a minimum credit score requirement higher than 450.
However, some lenders specialize in providing loans to borrowers with low credit scores. These lenders might consider factors beyond just your credit score, such as your income, employment history, and debt-to-income ratio. Consider reaching out to lenders who offer loans to individuals with poor credit and inquire about their specific requirements.
Tips to boost a 400 credit score
If your credit score is in the 400s, you’ve got some work to do. Here are some tips and tricks to help you improve your credit score:
Monitor your accounts
Credit bureaus are meticulous, but they aren’t perfect. It’s possible that they made a mistake with one of your credit accounts that hurt your credit score. If you spot these mistakes and report them, they can be removed to improve your score.
Apply for loans that build credit
If you’ve scoured your credit report and didn’t find any mistakes, you’ll need to rebuild credit in other ways. One option is to apply for a credit builder loan. These loans are designed specifically for people with bad credit to help them improve it. You can also apply for secured credit cards at most banks and credit unions.
Pay loans and debts on time
The single most important thing to do to improve your credit score is to pay your bills on time. Whether it’s student loans, credit card bills, personal loans, or anything else, making at least the minimum monthly payments is essential.
Manage your credit utilization ratio
Aside from paying your bills on time, keeping a low credit utilization ratio is the best way to improve your credit score. Your credit utilization ratio refers to how much of your available credit you use. Most lenders like to see a ratio of 30%, which means you only use 30% of your available credit.
For example, if you have a credit card with a $6,000 limit, maintaining a credit utilization ratio of 30% means you should not owe more than $1,800 at any time.
Be patient and consistent
If you have a 400 credit score, it will take time to rebuild your credit. Depending on your situation, this could mean several months or years of consistent on-time payments and responsible credit use.
Navigating loan options with poor credit
Having a 400 credit score may limit your loan options, but this doesn’t mean you’re out of luck. If traditional lenders have denied your loan request due to bad credit, we may be able to help.
Visit your nearest Advance America store or apply for an online loan today!
Notice: Information provided in this article is for informational purposes only. Consult your attorney or financial advisor about your financial circumstances.
About the author
Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.