A 400 credit score is not good but at least it’s not the lowest score you can have. This score falls significantly below the national average FICO score of 716 and will make it hard to secure a loan or card. While your borrowing options will be severely limited, they do still exist.
There are cards and loans for a 400 credit score. Most of your options will have a lot of fees and may require a deposit. In this case, the best thing you can do is improve your score. A higher score will increase your options tremendously and let you save hundreds to thousands of dollars.
Let’s go over how you can improve your score to get the best offers and what financing you can get with a 400 credit score.
How to get beyond a Very Poor credit score
Escaping the clutches of a very poor score can seem impossible and it’s true with a 400 score you have a long way to go, but with strategic steps and consistent effort, you can reach a good score.
The first step is to get a copy of your credit report. You can request one from each of the three credit bureaus – Equifax, Experian, and TransUnion – every 12 months from AnnualCreditReport.com. Take a look and identify any inaccuracies that could be unfairly dragging down your score. Disputing these errors with the credit bureaus can lead to quick improvements.
Then look and see what mistakes you’re making that are hurting your score. Many consumers with low scores in the 400 range have missed payments or made payments more than 30 days late – late payments are a huge factor. The average utilization rate for consumers with bad scores – anything below 580 – is 73%. This is extremely high and shows that you are too dependent on borrowed money. Lenders want you to use your cards and loans but not be reliant on it.
Once you know what mistakes you’ve made, you know what you have to do to correct them.
Is your score too low?
How to improve your 400 Credit Score
While knowing your personal mistakes is very important, it is also good to know how scores are calculated. Most lenders will pull your FICO score to determine whether or not to approve you.
FICO scores are calculated weighing the following factors:
- Payment history – 35%
- Amount used – 30%
- Length of credit history – 15%
- New inquiries – 10%
- Credit mix – 10%
We’ll go over how you can apply these factors in more detail to boost your FICO score. Apply a mixture of them as some work faster than others. As you consistently develop responsible habits you’ll see your FICO score rise.
Read more about your credit score!
Percentage of generation with 300–639 credit scores
Generation | Percentage |
---|---|
Generation Z (18-23) | 37.7% |
Millennial (24-39) | 41.2% |
Generation X (40-55) | 40.3% |
Baby Boomers (56-74) | 25.1% |
Silent Generation (75+) | 17.8% |
Wondering why it’s so important to pay on time?
Add positive information to your credit report
The best thing you can do for your score is to make timely payments on all your accounts. Consistent, on-time payments can significantly impact your score positively over time. Set up reminders or autopay so that you never miss a payment.
If you’re worried about being late, reach out to your creditor before you miss a payment. They may be able to set up a hardship program or work out a different solution.
Another way to add positive information to your report is to use a secured credit card responsibly. These cards report to the national credit bureaus just like standard cards, helping build a history of creditworthiness but they are much easier to be approved for. Secured cards require a security deposit – 100% refundable – that serves as collateral and sets your limit.
Additionally, becoming an authorized user on a family member’s account can also contribute positive information to your credit history, provided the primary account holder has a good score and maintains responsible financial habits.
Don’t let your credit card balances balloon
The amount of credit you use is the second biggest factor in calculating your score. Don’t max out your cards. Keep your balances below 30% of your credit limit. This will give you a good credit utilization ratio and show to lenders that you’re not dependent on borrowing money.
It can be hard to reduce the amount you use, but doing so will significantly help your score. If you can, make multiple payments throughout the month to keep your utilization down.
Another way you can boost your rating is to reduce outstanding debts, particularly those with high interest rates. Create a sustainable budget that prioritizes debt repayment. Even small, regular payments toward your debt can have a significant positive impact on your score over time. This will help your utilization rate, improve your payment history, and lessen your debt-to-income ratio (DTI). Your DTI is an important factor that lenders look at when considering applicants for loans.
Learn the best practices for boosting your score on Credit Score Builder!
Think carefully before closing old credit card accounts
While it might be tempting to close old credit card accounts, especially if you’re afraid of debt, think twice. Older accounts contribute to your credit history length, which is a factor in your score calculation. They will also give you a higher cumulative limit making it easier to keep your utilization rate low. Closing these accounts can shorten your credit history and potentially lower your score.
Instead, keep these credit accounts open but with minimal use. Put a small subscription on it and set up autopay so you never miss a payment. This maintains the account’s positive contribution to your score without risking high balances.
Closing an old account can also decrease your credit mix. Lenders want to see that you can handle different types of borrowing responsibly – as in installment (loans) and revolving (cards). If you only have one card and you close the account you will lessen your mix.
If the card has no annual fee, the benefits of keeping it open usually outweigh the downsides. If there are a lot of fees, it may be better to close the account.
Get a secured credit card or credit builder loan
Additionally, consider tools designed to help raise your rating. Secured credit cards, for example, require a security deposit that serves as your limit. These cards are often more accessible to those with lower scores since they usually have few requirements. When used responsibly, it can demonstrate your reliability to lenders.
Or you could take out a credit builder loan. These loans are unique because they are also a savings tool. Unlike regular loans, you don’t get the money right away. Instead, it is held in a secured account and you make low monthly payments towards the loan. The financial institution reports your on time payments to the three major credit bureaus, improving your score. Once the loan is paid off, you get the money, maybe with interest – depending on the loan you took out.
One really easy way to raise your rating is to report all on time payments you make to the national credit bureaus – Equifax, Experian, TransUnion. Normally only installment loan and card payments are reported, but more and more companies are making it possible to report all your monthly payments. The more on time payments you have the more your score will go up.
While you’re working on improving your score, avoid taking on new debt or applying for unnecessary cards or loans. Each application can temporarily lower your score for a few months to a year. Patience is essential. Raising your rating doesn’t happen overnight. By adopting these habits, you’re not just working toward a higher score, but also towards healthier financial practices that can benefit you throughout your life.
Check out MoneyFor to learn more.
Personal loans with a 400 credit score
Securing personal loans with a 400 score is challenging, but not impossible. Most traditional big banks have minimum credit score requirements of 600 or more. This will make it tough when exploring loans for a 400 credit score. You may find your options limited and the terms less favorable. High-interest rates and stringent repayment terms are common, as lenders view these loans as high risk. However, some financial institutions and online lenders specialize in loans for low scores and make it possible to borrow money no matter your rating.
Online lenders often have more flexible criteria than traditional banks and might consider other factors beyond your score, such as employment status and income. These direct lenders who offer personal loans to individuals with a 400 credit score often specialize in high-risk financing. Most of the loans they offer though will be short-term loans that come out of your next paycheck. The issue here is these loans can more with extremely high fees and APRs of up to 700%.
A better option is Payday alternative loans (PALs). These are offered by some credit unions as a response to payday loans. PALs often come with higher loan amounts – up to $2,000 – and caps on interest rates. You will likely make fixed monthly payments rather than having to repay a lump sum.
Credit unions are member-run financial institutions and so tend to be more friendly and have flexible requirements. Many will consider applicants with poor credit scores. The catch is that you have to be a member to get a loan. Check with your local credit union and find out the member requirements. They may be your answer to loans and banking.
Cash advance apps are a new solution. These apps will advance you a small amount of cash instantly. Usually from $50 to $500. Most apps do not require a credit check, have few to no fees, and no interest charges. Most do ask for an optional tip. Be careful how much you tip for the service so that you don’t end up paying a 400% APR – this is different than tipping your wait staff.
It’s crucial to approach all these loans with caution. Make sure you can afford a loan before you agree to it. The terms, including interest rates and fees, should be reviewed thoroughly to ensure they don’t exacerbate your financial situation.
Additionally, consider lenders who report to the three national credit bureaus (most payday lenders and cash advance apps don’t). Timely repayment of a personal loan can show responsible behavior and boost your score. Always research and compare offers from multiple lenders to find the most favorable terms for your financial situation.
What’s the easiest loan to get with bad credit?
The easiest loans to get with a 400 score are payday loans, cash advances, and secured loans. All of these loans put less emphasis on your score and more on your next paycheck or the asset you use to secure the loan.
Payday loans are typically small, short-term loans intended to cover urgent expenses until the next paycheck. While they can provide immediate relief, it’s crucial to be aware of their high interest rates and fees. While best to be avoided, a payday loan can be a viable option for emergency loan 400 credit score scenarios. The issue here is that payday loans have very short repayment terms and very high fees. Frequently, people cannot repay on time and have to roll the loan over incurring even more fees. This can easily lead to a cycle of debt.
Cash advances are a better option in this case since they have much lower fees and less penalties. But again, they do have short repayment periods. Before you take out a cash advance, check to see if you can reschedule the payment for free. Many apps let you reschedule at least once.
Secured personal loans require a form of collateral like a savings account or vehicle. These loans often have lower interest rates compared to unsecured loans for individuals with low ratings, making them a more manageable option for those seeking 400 credit score loans.
Credit cards are not usually considered loans but they are revolving lines of credit. This means you get to spend the money then pay off your balance and spend it again without reapplying. Using a card responsibly is also one of the easiest ways to boost your score. There are credit cards for a 400 credit score with no deposit. They will come with higher fees but let you borrow money and an opportunity to improve your score.
Want an unsecured card?
Are there any guaranteed loans for bad credit?
There is no such a thing as guaranteed but there are loans that come awfully close. A lot of payday loans for a credit score of 400 are practically guaranteed and do not have a credit check. Payday lenders are more concerned about your next paycheck than your FICO score.
While the promise of guaranteed approval quick cash loan is enticing for those in dire need of funds, it’s essential to tread with caution. The terms associated with these loans can be particularly onerous. High-interest rates and fees, short repayment periods, and the potential for a debt cycle should make you think twice.
Another option is an online lending network. These platforms can be very helpful if you’ve had a recent bankruptcy discharge or simply have a low score. You submit one application and the platform matches you with direct lenders in their network who work with borrowers in your score range. The direct lenders you’re matched with then send you multiple offers in minutes, all without damaging your rating.
You can look over your offers and find the best one for you. Compare the interest rates, fees, loan amount, and repayment term. This way you can find a loan that you can afford. Once you’ve found the best loan, formally apply with the direct lender. You’ve already been preapproved, so while approval is not guaranteed, you have a very good chance of getting the loan.
Paying back a loan as agreed can improve your score and lead to better loans in the future. Just make sure you can afford the full cost of the loan.
Frustrated with constant credit card rejections?
Bottom line
A 400 credit score is bad but it’s not a permanent state to be in. It will take a lot of work and consistent responsible financial behavior, but you can change it to a good score. Raise your rating and you’ll have a ton more options for loans and cards that don’t require a lot of fees or a cash deposit.
If you can’t wait to improve your score, don’t worry, you can still obtain loans. The offers you can get will come with higher interest rates and additional fees to protect the lender. Weigh the cost of the loan and see if it’s worth it for you.
This content is general in nature and is provided for informational purposes only. MoneyFor is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through MoneyFor marketplace.