A credit score of 500 is considered very poor and not okay for most financial goals. However, the good news is that there are steps you can take to improve your credit score over time.
What does a credit score of 500 mean?
Credit scores range from 300 to 850. A score of 500 falls on the very low end of credit scores. This means you have a limited credit history and your payment history likely has some missed or late payments. Lenders consider a credit score below 580 as poor credit risk, meaning you will have difficulty getting approved for new credit products like credit cards, auto loans, or mortgages. You will also pay much higher interest rates if you do get approved.
Is 500 a bad credit score?
Yes, 500 is a bad credit score. This score indicates you have some negative items on your credit report and limited accounts in good standing. However, it does not necessarily mean you have a long history of missed payments or collections accounts. Even just one or two missed payments can bring your score down drastically when you have a thin credit file.
What are the risks of a 500 credit score?
There are several significant drawbacks to having a 500 credit score:
- Difficulty getting approved for new credit – You will likely get denied for most credit cards, auto loans, and mortgages.
- Higher interest rates – If you do get approved, expect to pay much higher interest rates that cost you thousands more over the loan term.
- Difficulty finding housing – Many landlords check credit reports and may deny your rental application.
- Higher insurance rates – Insurance companies see you as higher risk and will charge more for policies.
- Difficulty getting a cell phone plan – Phone carriers often check credit before approving plans.
- Trouble getting utilities connected – Some utility companies require credit checks and deposits.
What is a good credit score?
While credit scores range from 300 to 850, here are general guidelines on different score ranges:
| Credit Score Range | Rating |
|---|---|
| 800-850 | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| 500-579 | Very Poor |
| 300-499 | Poor |
In most cases, a credit score of 700 or higher is considered good and will qualify you for credit products at favorable interest rates. Scores below 580 make it very difficult to get approved for loans and credit cards.
How can I raise my 500 credit score?
The good news is that it is possible to raise your credit score significantly from 500 if you implement and stick to the right credit building strategies. Here are some effective ways to improve your credit over time:
Pay all bills on time
Payment history makes up 35% of your credit score. Set up automatic payments or payment reminders to avoid late payments. Pay down balances to below 30% of credit limits.
Dispute any errors on your credit reports
Incorrect negative information can severely damage your score. Dispute any mistakes with the credit bureaus to potentially improve your score.
Become an authorized user on someone else’s card
This can add positive payment history to your credit report. Just make sure the primary user pays on time and keeps low balances.
Apply for secured credit cards
Secured cards require a refundable security deposit and are easier to qualify for. Responsible use can demonstrate you can handle credit.
Limit new credit applications
Too many hard inquiries from applying for multiple new accounts can lower your score temporarily. Wait 6-12 months between applications.
Consider credit builder loans
These loans place the money you “borrow” in a savings account while you make monthly payments. The money is then released to you after the loan is paid off.
How long does it take to raise your credit score from 500?
It typically takes at least 6 months to see noticeable improvement in your credit score through responsible credit behaviors. Significant increases of 100 points or more may take 1-2 years for those with poor 500 credit scores. The key is patience and consistently demonstrating you can use credit wisely over time.
Conclusion
A credit score of 500 indicates you have poor credit health and will make it very difficult to obtain loans or credit cards at reasonable interest rates. However, by implementing responsible money management habits and using credit builder strategies, it is possible to increase your score substantially within a couple years. The key is staying committed to positive changes in your financial behaviors over time.