A 500 credit score is a subprime credit score. Consumers with this credit score will look like borrowing risks with lenders, but improving a 500 credit score is possible!
Around 15% of Americans fall within the subprime credit score range.¹
Having a poor score can make it tough to find financial products such as loans and credit cards. And when you do find 500 credit score loans, the cost of borrowing funds can be high. However, getting to a higher credit score may be possible!
Key Takeaways for a 500 Credit Score
Overview of Your
Credit Rating
A 500 credit score is considered a poor credit score. Behind a poor credit score there will likely be actions like missed payments, a high credit utilization rate, and more.
Borrowing Options With a
500 Credit Score
When you have a 500 credit score, you may only have access to bad credit loans. These loans usually have higher interest rates but, they may be your only options.
Improving a 500
Credit/FICO Score
Improving a 500 credit score is possible! There are many ways to go about improving your score; such as paying bills on time and paying down debt, we’ll discuss additional tools and strategies in this article.
Is a 500 Credit Score Good?
A 500 credit score is not considered a good credit score. It falls within the poor credit score range, which can make finances, specifically borrowing money or financing, challenging. However, by educating yourself and making smart and strategic financial moves, you can definitely improve.
What Can You Get Approved for With a 500 Credit Score?
Unfortunately, with a 500 credit score, you may not have many opportunities to finance or borrow funds. However, understanding more about these loans can be helpful, and there may be some on the list before that may be able to get approved, depending on the lender and whether you add a cosigner.
Personal Loans
People use personal loans for several reasons, including debt consolidation, home repairs, car repairs, and more. While there may be some personal loan options for a 500 credit score, there may not be many, and the borrowing cost will likely be very high.
Bank Loans
Banks usually offer a range of financial products, and anything under this umbrella can be referred to as a bank loan. With a 500 credit score, it will be tough to get approval from a bank or a similar institution like a credit union.
Credit Cards
People use unsecured credit cards for all kinds of expenses, including things they may not really need. This is one reason why credit card debt can pile up fast! Because there are so many different kinds of credit cards and issuers, you may find an option for your credit score.
Car Loans
A car loan can be a helpful tool when trying to finance the purchase of a used or new car. Car loans may be a little more flexible with credit because they require a down payment. And so, if you have poor credit, having a higher down payment may help your odds of approval.
Loans for Bad Scores
Bad credit loans can be any loan that is made for poor credit. You’ll find options like payday loans, title loans, and cash advance loans can all be considered poor credit loans. While these may be tempting when you need funding with a 500 credit score, these loans are best avoided. Options like payday loans and title loans can come with extremely high costs and be difficult to repay.
Products To Help Improve a 500 Credit Score
You can definitely improve your credit score on your own; however, there are products out there that can really help you and sometimes speed things up. Here are some products that may be able to help you improve your credit.
Secured Credit Cards
Secured credit cards can be great tools that can help you build payment history—the most significant factor that impacts your credit scores. With these, unlike an unsecured credit card, you don’t get the funds upfront, instead, you make monthly payments, which will usually be reported to all three major credit bureaus. With on-time payments, you can build a positive credit history on potentially each credit report!
Credit Builder Loan
A credit builder works similarly to a secured credit card. Just like secured credit card options, as long as you make your monthly payments, then it can be a great tool to build your credit scores.
Here are some credit builder loans out there:
- Republic Bank Credit Builder Loan
- Alltru Credit Union Credit Builder Loan
- Sunrise Banks Credit Builder Loans
- Self Credit Builder Account
- MoneyLion Credit Builder Plus
- Digital Federal Credit Union Credit Builder Loans
Personal Finance Apps
Personal finance apps can be another great tool to help you not only build credit but also manage your finances. Some personal finance apps offer their services for free, while others may cost money. Regardless, when used consistently, a personal finance app can definitely help your credit scores. Along with credit repair, these apps can help you save, invest, pay bills, and more!
Alternative Credit Reporting Services
Most of us are aware that credit accounts like loans and credit card payments are usually reported to credit bureaus. But what about monthly payments that you make every month that are not reported, things like your phone bill or rental payments? Most of us make these payments on time, which, if they were reported, could help your credit score. The good news is that there are alternative credit reporting services that do exactly that! This can be a great way to build a positive payment history without needing to take out a loan.
Here are some alternative credit reporting services that are free:
- TurboTenant Rent Reporting
- Experian Boost
- UltraFICO
- Grow Credit
Benefits of a 500 Credit Score
The silver lining in having a poor credit score is that you have room to improve it! There are lots of benefits that can come with improving your credit; here are some to look forward to:
Lower Interest and APRs
When you improve your credit scores and have a positive credit history, you will see your cost of borrowing go down. You’ll have lower interest rates and APRs, which could mean saving a lot of money over time, especially with long-term loans like a mortgage.
The Ability to Finance Purchases and Expenses
With good credit scores and credit history, you’ll have the ability to finance purchases and unexpected expenses. This can be extremely helpful in all kinds of circumstances. For example, if you are a student, you may need to borrow a loan for books. Whatever the case, good credit scores will make it much easier for you to get through lots of financial situations.
Loan Options That Fit Your Finances Better
When your FICO credit scores are good or excellent, you’ll likely be able to find loan options that better fit your finances. Personalization is key with credit accounts, and a higher score will mean more flexibility with lenders.
More Borrowing Options to Choose From
Higher FICO credit scores will mean more borrowing options to choose from. Going back to the point above, this means personalization! With good credit, you can consider revolving credit, installment loans, secured loans, unsecured loans, short-term options, or long-term options! With all of these choices, you can be sure you’ll find a loan that fits your needs well!
How to Improve Your 500 Score
Here are some steps you can take to improve your credit score on your own:
Diversify Your Credit Mix to Improve Your Average Credit Score
Your credit mix is composed of the different kinds of credit accounts that you have on your credit report. Having diversity in this shows that you have experience with different kinds of credit, and will also help your score.
Keep Your Credit Utilization Ratio Under 30%
Your credit utilization ratio measures your debt against your available credit. One way to improve your credit is to keep this ratio below 30%; you can do this by paying off debt or by increasing your credit limits.
Make Timely Payments
This is the best way to improve credit in many cases! Because your payment history is usually the most significant factor that impacts your credit. Keeping reminders or setting up auto-pay are just a few ways to make timely payments easy for you.
FAQs About 500 Credit Scores
How does a secured credit card impact my credit report with a 500 credit score?
A secured credit card can positively impact your credit report by demonstrating responsible credit use. Regular, on-time payments are reported to credit bureaus, improving your payment history and, potentially, your credit score. It’s essential to manage the card wisely to ensure positive effects.
Can increasing my credit limit on credit card accounts improve my 500 credit score?
Yes, increasing your credit limit can help lower your credit utilization ratio, which can improve your credit score. This strategy works if you don’t increase your spending, as a lower utilization ratio is viewed positively by credit scoring models.
What's the difference between secured and unsecured credit cards for building credit from a 500 score?
Secured credit cards require a deposit and are easier to obtain with a lower credit score, directly impacting your credit report through reported payments. Unsecured credit cards, which don’t require a deposit, are harder to qualify for with a 500 score but also report to credit bureaus.
What Interest Rate Can I Get With a 500 Credit Score?
Rate specifics can range quite a bit. Interest is determined usually by the following factors:
Factor | Description |
The Loan | Refers to the type of loan being taken out, including its terms and conditions. |
The Lender | Involves the policies and risk assessment procedures of the institution or individual providing the loan. |
Borrower’s Finances | Considers the financial health of the borrower, including credit score, income, debt-to-income ratio, and other financial indicators. |
When you have a credit score of 500, you’ll likely only be able to access loans that have high interest rates.
Can I Buy a House With a 500 Credit Score?
Buying a home has many requirements. One of the requirements is usually a fair or positive credit score. There may be lenders that are more lenient with a low credit score, especially if you have a co-borrower. However, for the best interest rates, you should consider improving your credit before applying for a mortgage.
Top 5 Resources for a 500 Credit Score
References:
- Credit Scores Catch 22 | Yahoo Money
- Best Credit Builder Loans | WalletHub
- 4 programs that help you boost your credit score (for free!) | Fortune Recommends