In 1959, Equifax, one of the “Big Three” credit bureaus, hired Bill Fair and Earl Isaac to develop a universal scoring system that could be used by lenders to assess borrower risk. Bill and Earl’s company was called Fair Isaac Corporation. Today, we know them as FICO. Their scoring system is used by most lenders, including those that offer motorcycle loans.

FICO scores range from 300 to 850 and are grouped into five categories. The top-level, which is 800-850, is classified as “exceptional” credit. That’s followed by “very good” (740-799), “good” (670-739), “fair” (580-669), and “poor” (300-579). Loan applicants with a score of 550 are in the “poor” category and considered high risk. That doesn’t mean getting a loan is impossible.

Credit score and debt-to-income ratio

The factors that go into calculating a FICO score include payment history, credit utilization, length of credit history, credit mix, recent credit applications, and derogatory information. Lenders also look at the debt-to-income ratio (DTI), which is the amount of monthly debt payments divided by gross monthly income. The FICO score and DTI determine borrower risk.

A poor credit score and high DTI is a warning sign to lenders, so approval for a loan is less likely. Those who approve an application will generally charge a higher interest rate and fees. With a motorcycle loan, the title to the vehicle is held by the lender until full repayment of the loan, so lenders are more likely to approve an applicant with a lower score.

For most consumers, none of this is new information. The same scoring system used to approve motorcycle loans is employed for auto loans, personal loans, mortgages, and credit cards. The amounts could be higher or lower, but the common denominator is the amount of risk a lender is willing to take. The best way to mitigate that is to increase the FICO score and lower DTI.

Poor credit loans for motorcycle buyers

According to Experian, another one of the “Big Three” credit bureaus, 68 million Americans have credit scores lower than 601. That’s nearly 30% of the adult consumer population. Lenders could simply deny all of them for loans, but that would eliminate nearly one-third of their potential customer base. That’s not good business in any industry.

Difficult economic circumstances, the 2020 pandemic, and rising inflation have combined to skew the numbers even lower. This “credit score dilemma” has given rise to several lenders who specialize in “poor credit loans.” Consumers looking to buy a motorcycle with a low credit score now have more options to do so.

As for the debt-to-income ratio, consumers might want to work on before they apply for a loan. Debt consolidation is one way to do that. Paying down existing debt with higher monthly installment payments is another. Lenders are willing to overlook low FICO scores when DTI is lower. Do the work to bring that number down, shop around for the right lender, and that motorcycle could be in the driveway or garage soon.

The Bottom Line

So, can you get a motorcycle loan with a 550-credit score? It’s not entirely impossible, but you may have to jump through a few extra hoops to get approved. Lenders will look into your credit score and debt-to-income ratio to decide on your creditworthiness. Luckily some lenders will offer you a motorcycle loan with lower credit scores to give you a chance to do more of what you love.

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