What Can I Do With a 500 Credit Score?

Credit scores can be confusing. Between the different scoring models and credit bureaus, sometimes it’s hard to understand what your score actually means. If you have a 500 credit score, you might be wondering if...

Credit scores can be confusing. Between the different scoring models and credit bureaus, sometimes it’s hard to understand what your score actually means.

If you have a 500 credit score, you might be wondering if you qualify for credit or what kinds of terms you can get.

Read on to explore how you can use your current credit score and what you can do to improve it over time.

What Makes a Credit Score?

A credit score is a three-digit number that acts as a snapshot of your credit profile. The most common credit-scoring models—FICO score and VantageScore—usually range from 300 to 850.

The higher your score, the better your chances of a lender giving you credit or favorable terms (like a low interest rate).

Your score comes from proprietary calculations and scoring models. So, while we don’t know the exact formula of what makes a credit score we do know what goes into it:

  • Payment history (35%): Do you make your payments on time?
  • Credit utilization (30%): How much of your available credit are you using?
  • Length of credit history (15%): How long have you had credit accounts?
  • Credit mix (10%): What different types of credit do you have?
  • New credit (10%): Have you recently opened new accounts?

Scores are calculated by the three major credit bureaus (Experian, TransUnion, and Equifax) using data from your credit report.

Is 500 a Good Credit Score?

A lot of people want to have a good credit score. Unfortunately, a “Good” score is fairly arbitrary. A truly good credit score is whatever helps you access the credit products you need while still being affordable.

According to the common credit score ranges, a 500 credit score is often considered a “Poor” credit score. This doesn’t mean you’re locked out of accessing credit, nor does a "bad" credit score mean you can’t manage your money.

Keep in mind that credit scores drop even if you temporarily fall on hard times or make one mistake. They're not an indication of who you are, or how your financial future will turn out.

For example, you lost your job and had to go into credit card debt to feed your family until you found a new one. Keeping your family healthy and happy is far more important than an arbitrary number.

Things You Can Do With a 500 Credit Score

Having a lower credit score or poor credit history may make you feel like you can’t access credit. However, most borrowers can find a lender to fit their needs—especially with modern technology like online loans.

You’re no longer limited to going to a traditional bank or financial institution to get credit. And many modern lenders are using more than your credit score to determine creditworthiness, such as factoring your income and savings into their decisions.

Some credit accounts you can get with a score in the 500 range include new and used car loans or credit cards with rewards programs. (Be aware that you may have to pay higher interest rates than someone with a higher credit score.)

Let’s look at some of the common interest rates for different types of credit when you have a low credit score:

  • Credit Card Effective Interest Rate: 21.1%
  • New Auto Loan Rate: 9.41%
  • Used Auto Loan Rate: 15.95%
  • 5-Year Personal Loan Rate: 29.47%

Note that these interest rates are averages for borrowers with lower scores. This doesn’t mean you’ll get these rates, as rates can change often and your credit profile as a whole will play a role.

Where Do I Go From the 500s?

A Poor credit score is generally noted as any score below 630. Scores between 630-689 are usually considered “Fair.”

If your score is in the 500s, you should be able to move up to a Fair credit score by following credit best practices:

  • Make on-time payments: Missed payments or late payments can quickly hurt a credit score. Try to make on-time payments for at least the minimum amount to help build credit over time.
  • Resolve inaccuracies: Is your credit report accurate? Monitoring your credit report helps you spot inaccuracies so you can fix them before they hit your credit score. You can get a free credit report once every 12 months.
  • Avoid maxing out cards: Your credit utilization ratio is how much available credit you have compared to your credit limit. A lower utilization rate—or spending less on your credit cards—could help build your credit.

How Long Will It Take to Improve My 500 Credit Score?

The upside of having a score on the lower end is the ability to improve your score quickly. In general, it takes less time to increase a lower score than a higher one. And you may only need to make a few changes to your personal finance habits to start seeing results.

For example, let’s say you’ve had trouble remembering your credit card due date in the past. You could try setting up autopay for your minimum payment.

Or, you could put a monthly reminder in your phone calendar that sends you an alert. You may start to see your score change after only a few months of on-time payment activity.

It’s important to note that there’s no way to know how something will affect your score—or how soon. One person might see their score jump by 10 points in a billing cycle while another’s doesn’t change for six months.

Your best bet to build credit is to continue following responsible credit habits, regardless of how fast your score changes.

What Happens When Your Credit Score Goes from Poor to Fair?

Increasing your credit score can open up new types of credit accounts and better overall terms. When you move from a Poor credit score to a Fair credit score, you may start to qualify for interest rates and terms that are more favorable for your future plans.

You’ll also likely increase your approval odds for different accounts, such as a new car loan or a mortgage loan improve. For example, you may qualify for FHA loans, which are home loans backed by the federal government that have lower down payment requirements.

Credit card companies may approve you for a higher credit limit. If you have a secured card, you could start to qualify for unsecured credit cards.

The Bottom Line

Remember, your credit score doesn’t define who you are. Credit scores are simply a financial tool you can use to get access to different credit products.

While you can achieve some goals with a 500 credit score, it’s always a good idea to continuously work toward building better credit.

Just don't let that work keep you from appreciating what you can do where you are right now.

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