550 Credit Score

Improve Your 550 Credit Score

Is There Any Hope For My 550 Credit Score

Most people with a 550 credit score feel there is nothing they can do to escape this bad credit cycle that they’re stuck in. Having a low credit score seems to make it more difficult to access the things you need to improve your credit score like a car loan, a mortgage, or a credit card. The truth is, it is much often easier to improve on a low credit score, than on a higher score, because each action you take to improve your score will generally have a greater, more immediate impact on your score.

Credit Cards

Finding a credit card with a 550 credit score may be very difficult, but it’s not impossible. There are many credit cards available today that are specifically designed to help you rebuild your credit. Be careful though, as there are many credit rebuilding cards out there that can carry major risks and if not done correctly, could cause your credit to spiral even lower. Examples of these cards would be secured Visa and MasterCard credit cards, which require a security deposit, usually of 100% of your requested credit limit, catalog/online shopping services with revolving credit lines, and in some cases, a major credit card without the requirement of a deposit, but often charge activation fees, annual and monthly fees, finance charges and other fees up front. In most cases, each of these options require you to either pay some money up front, or pay much more for the items your purchase than you would with a standard credit card, or both, but used wisely, are a great way to start rebuilding your credit.

Car Loans

There are many local and national car loan programs that will loan you the money to purchase a car regardless of your credit. In general, these programs really only require that you have job history and make a certain amount of money per month. As with any credit rebuilding loan, the risks are high for both parties so these loans are almost always more expensive than a conventional loan. There are no shortage of horror stories of people who got a car with one of these types of loans, and then the car broke down a week later with no relief, and no way to get to work to get the money to pay the loan. The key to choosing one of these programs is to do a lot of research and choose the loan that’s best for you. Some of the loans are made directly by the dealer and come with a warranty that covers the car for the life of the loan. Some of these dealers will have other services such as swapping your car with another on the lot if yours breaks down. There are other loans out there that will get you more car, but require a larger down payment, and even others that will allow you to return the car to the dealership if your situation changes and you are no longer able to pay for the car.

Home Loans

While there are a few home loan products out there for people with a 550 credit score, the score itself may not be your only obstacle to buying a new home. It is very likely that if you have a credit score of 550, the cause of this score may be your undoing when borrowing to buy a new home. While there are government backed lending programs such as FHA, USDA, and VA loans that you may qualify for with a 550 credit score, these loan programs will also require that you pay off any outstanding debts reporting on your credit report, which are most likely the cause of your score. These debts usually include paying your current car, home, or credit card payments up to date, paying off any collections such as medical, utility, or charged off credit card and car loans. The catch with this is that most people with a 550 credit score are not just choosing not to pay their bills, but are unable to due to lack of funds. If this is the situation you’re in, there are a few things you can try to do to improve this such as ask for settlements and dispute accounts that you don’t feel are being reported correctly, but there is no guarantee.

As an alternative, there are other options for obtaining financing for a home. The most popular way to finance a home with a 550 credit score is to purchase a home using owner financing or seller financing. This is where the owner of the home sells the home on a rent to own agreement, a land contract, or contract for deed. The danger to this as a buyer is that you don’t have the luxury of the protections built into the conventional real estate purchasing process such as title insurance and notarized documents and contracts from the seller. Seller financed deals are often just one or two pages of paper not worth much more than a handshake and a promise. Other downsides to owner financed homes is that they usually want a significant down payment, interest rates are typically much higher than conventional loans, and there is no credit reporting to the credit agencies to help build your credit.

Another home buying alternative is non-conventional lenders. These are usually large companies that sell their own inventory of homes on what are usually more elaborate owner financing agreements. If you do your research, there are several that have contracts that protect both the buyer and seller as to the condition of title on the property, and even many that report your on time payments to the credit bureaus.

How Can I Improve My 550 Credit Score

The reason most people who have a 550 credit score have such a low score is because of many late payments or debts on their report that are just simply unpaid such as charge offs, medical and utility bills, and judgments. The first step in improving your credit score is always to get a copy of your credit report and become knowledgeable about what is on it. If you have bills you are late on, get them up to date. If you have collections or charge-offs, contact the creditor to make payment arrangements or negotiate a settlement. Things can go off your credit, but it takes years and years, and the amount it can cost you in higher interest rates or exclusion from credit which may ultimately result in loss of job or lower pay, will be more than it would have cost to just take care of them. There are also services who will, for a fee, negotiate your debt with the creditor on your behalf to either try to get the total reduced, or arrange payment arrangements, or both. If you plan to use one of these services, it is very important tot do your research, as you could end up in an agreement that may not work for you and it could cause additional credit issues in the future if you are unable to meet the terms the service set up for you.

Avoid Unnecessary Debt

Apart from taking care of your old debt, part of rebuilding your credit will be to take on new credit accounts and keep them in good standing. This is a pitfall for many, as the convenience of a new credit card or cards can often lead to overspending and over leveraging. This is where a plan can be helpful. If you plan to only use the new credit for purchases you can afford without the new credit, and even the, only item that you absolutely need and would have purchased anyway (such as gas and groceries), then pay it off every month, you should be in good shape in no time. Many people run into a problem when they try to “cheat” their plan and convince themselves that they would have bought a new TV anyway. Before long, behavior like this will have you buried in new debt, and right back where you started.

Savings Account

This is a largely misunderstood point in rebuilding credit. Most people realize that credit reporting agencies do not take into account the amount of money a borrower has in savings, or whether or not that borrower even has any savings at all. It is important in your plan to rebuild credit, especially if your reason for improving your credit is to use your credit to make a big ticket purchase like a new car or house.

Bad credit usually happens when an unplanned event or circumstance prevents a bill from getting paid on time. Depending on the significance of the even, this can either be a big bump in the road, or a total derailment. If you are living paycheck to paycheck, and you miss a credit card payment, you may never be able to get that credit card back on track. If that happens, this may cause a situation where your pay dates don’t line up right, and you’ll not be able to use your credit card to pay the electric bill. This may result in disconnection and re-connection fees which you will have to pay because you rely on electricity. If you pay the bill and all related fees, now you may not have enough money to make your car payment, or even worse, your rent or mortgage payment.

Imagine now if you had a savings account. Nothing much, but if included in your plan, you put a small amount every paycheck, and only use this money in the case of an emergency. If you need it, it’s there. And even better, over the years, if you don’t need it, you will then have money which you may be able to use for a down payment for a house or a car. And a third benefit that is often overlooked, yet probably more important that all the rest, is that by saving a few dollars each week in a savings account, you are building positive habits that will help you to maintain your credit for the rest of your life.