By CreditNinja
Published on May 2, 2024

504 falls within the “poor” credit category for FICO and VantageScores. 

Poor scores are typically a result of too much debt, and some American counties are more prone to financial difficulties.

According to credit data from the Urban Institute, 92 of 100 counties with the highest share of adults struggling to pay their medical debt are in the South.¹ If you currently have a lot of outstanding debt, your credit will likely be low. But there are ways to reduce your debt and improve your credit! Keep reading to learn how borrowers with 504 credit scores can start improving their creditworthiness. 

Key Takeaways for a 504 Credit Score

Overview of Your
Credit Rating

504 is a poor credit score. Poor scores indicate that borrowers may have difficulty repaying their debts and managing their finances.

Borrowing Options With a
504 Credit Score

Your borrowing options will be limited with a bad credit score. While it’s not impossible to qualify for funding, your terms and rates will not be ideal.

Improving a 504
Credit/FICO Score

You can improve a 504 score over time by using credit-building tools, such as secured credit cards, avoiding late payments, and reducing your outstanding debt.

Is a 504 Credit Score Good?

A 504 credit score is not good, and it’s not close to the average credit score of American consumers. When it comes to checking credit scores, most lenders use the FICO or VantageScore credit scoring model. Good FICO scores start at 670, while good VantageScores start at 661. Good credit can help borrowers get a lot of benefits, such as lower rates, higher loans, better credit card rewards, and more housing options. If you have a 504 score, it’s in your best interest to work on building a stronger credit score.

What Can You Get Approved for With a 504 Credit Score?

You may qualify for these loan options with a poor credit score:

Personal Loans

Personal loans are installment loans that borrowers use for a wide variety of unexpected expenses. A personal loan can provide up to a couple of thousand dollars, but you may only qualify for a small loan amount with a bad credit score. Keep in mind that some online lenders specialize in offering bad credit loans, which may have flexible credit requirements and competitive interest rates.

Bank Loans

Banks offer a lot of different financing options. If you have a poor credit score, you may have difficulty getting approved for unsecured loans at a bank or credit union. While banks can offer decent rates and terms of loans, they are typically harder to get due to high minimum credit score requirements. You may have a better chance of qualifying for a secured loan, such as a home equity loan or line of credit. 

Credit Cards

If you’re interested in improving your credit history, consider applying for a secured credit card instead of an unsecured one. Secured credit cards work just like credit cards, but you must provide a security deposit that will be your credit limit. Your financial activity on the secured credit card is reported to at least one of the major credit bureaus that update your credit reports. Keeping your credit balance low and paying your monthly bills on time can help you boost a bad credit score over time. 

These are some of the best secured cards for low credit scores:

  • Bank of America® Travel Rewards Secured Card
  • Mission Lane Visa
  • Capital One Platinum Secured Card
  • Secured Chime Credit Builder Visa® Credit Card
  • Self – Credit Builder Account + Secured Visa® Credit Card
  • Discover it® Secured Credit Card

Auto Loans

Low-credit borrowers could qualify for an auto loan because it requires collateral. Secured loans are less risky for lenders, which is why they tend to have more flexible credit qualification requirements. Rates for auto loans generally depend on your creditworthiness and the type of vehicle you want. New cars typically always have lower rates than used cars because they’re more reliable. Since your credit is on the lower end, you’re likely to get an auto loan offer with a high APR. However, you can reduce your loan fees by opting for a shorter repayment plan.  

Products To Help Improve a 504 Credit Score 

These products make it easy for borrowers to improve their FICO credit scores: 

Credit Monitoring 

Monitoring your credit can help you stay motivated to improve it. By changing your financial habits and actively working on building a strong credit score, you can see the changes in your credit score over time. Many credit card companies offer free FICO Scores that borrowers can access through their online accounts. However, Experian, one of the major credit bureaus, provides free credit scores through their website. 

Budgeting Apps

Budgeting apps are useful for a wide variety of reasons. The right budgeting app can help you track your spending, set financial goals, schedule bill payments, and more. Most popular budgeting apps charge a monthly fee, but you can typically get a free trial before deciding to commit. 

These are some of the best budgeting apps on the market:

  • YNAB (You Need A Budget): Best for Setting Goals
  • Goodbudget: Best for Envelope Budgeting
  • Honeydue: Best for Couples
  • Oportun: Best for Passive Saving
  • PocketGuard: Best for Tracking Spending

Debt Consolidation Loans 

Consolidating your personal debt could help you improve your credit score by organizing your finances. A debt consolidation loan is an installment loan that allows borrowers to merge various loans or credit card accounts into one new account. If you are able to get a good deal on debt consolidation loans for 500 credit score, you can save on interest fees. Consolidating means you have fewer monthly bills, so it may be easier for you to avoid late payments. 

Benefits of Improving Your 504 Credit Score

These are a few benefits you can receive with a higher credit score: 

Lower Interest Rates

Once you obtain a good credit score, you will notice how you get lower interest rates on financial products. Financial institutions use higher interest rates to offset the risk of potential default. But if your credit history shows you are a low credit risk, you could be eligible for the lowest interest rates on the market! Lower rates can help you save a lot of money and keep more money in your checking account. 

Higher Credit Limits

Lenders typically only offer high credit limits to borrowers who demonstrate good financial habits and have an excellent credit history. If you have an average credit score or higher, you may qualify for higher credit limits. A higher credit limit can reduce your credit utilization rate, which affects your FICO Score by 30%!   

More Housing Options

Landlords typically do not approve applicants with low credit scores because they are financially risky. As a result, your housing options may be limited. But if you work on getting a higher credit score, you may get approved quickly for your preferred rental unit. Potential tenants with good credit may also qualify for a lower security deposit. 

How To Improve Your 504 Credit Score

You can work on rebuilding your credit history and achieving a higher credit score by following these tips: 

Avoid Late Payments 

You can get an average credit score by working on improving your payment history. Late payments can decrease your credit score and remain on your credit report for up to seven years. However, a long history of timely payments can boost your bad credit over time. If you have trouble keeping track of multiple bills, consider consolidating or signing up for automatic payments. 

Lower Your Credit Utilization 

Your credit utilization rate is the total amount of credit card debt you have compared to your total credit limits. Using too much credit can negatively impact your credit score and look bad on a credit report. If you want to work on getting an average credit score, it’s critical to work on paying down your outstanding debt. 

Here are 5 ways you can speed up debt repayment:

  1. Use the debt avalanche or snowball method.
  2. Pay more than the minimum every month.
  3. Make more than one monthly payment.
  4. Consolidate using a personal loan or balance transfer loan. 
  5. Avoid new credit card purchases.

Monitor Your Credit Reports

The three major credit bureaus provide free credit reports every 12 months. It’s essential to monitor your credit reports at least once a year to ensure your information is accurate. Mistakes can occur, and they can decrease your credit score. If you notice an error on a credit report, you can dispute it with the credit bureau and typically have it corrected within 30 days.

FAQs About 504 Credit Scores

An average credit score typically falls within the range that lenders consider “fair.” For both FICO and VantageScore systems, this is usually between 580 and 669. Understanding how your score compares can help you set realistic goals for improvement.

A credit builder loan is designed to help individuals build a positive credit history. These loans work by the lender depositing a small loan amount into a secured savings account rather than giving you the money directly. You make regular payments towards this amount, which are reported to credit bureaus, thereby improving your credit score as you demonstrate reliability.

Opening a new credit account can be a double-edged sword. If managed wisely, new credit accounts can improve your credit score by diversifying your credit mix and establishing a history of on-time payments. However, each application can also temporarily lower your score due to hard inquiries. It’s important to apply cautiously and ensure you can manage additional credit responsibly.

Credit card applicants with low scores should start by improving their credit scores through consistent, responsible financial behavior. This includes paying all bills on time, reducing outstanding debt, and perhaps using tools like secured credit cards. When you finally improve your credit history and get a good credit score, you’ll likely become eligible for credit cards with lower APRs and higher limits.

It’s advisable to check your credit report at least once a year to ensure all the information is accurate and up-to-date. This can be done for free through the major credit bureaus. Regular monitoring helps you catch and rectify any inaccuracies or fraudulent activities early, which can be crucial in maintaining a higher credit score.

What Interest Rate Can I Get With a 504 Credit Score?

Borrowers with low scores generally get high interest rates on financial products. If you get approved for a loan or credit card, the financial institution will likely offer a relatively high rate to reduce the lending risk. Improving your credit history and obtaining an average credit score can help you get lower rates that greatly reduce the cost of borrowing money. 

Can I Buy a House With a 504 Credit Score?

It may be possible to qualify for a mortgage with a 504 credit score, but your terms and rates will not be ideal. There are government assistance loans that can help low-credit borrowers buy a home, but they have strict qualification requirements. 

Here’s a table outlining some mortgage loan options that might be available for borrowers with bad credit scores:

Loan Type

Features

Considerations

FHA Loans

– Lower credit score requirements (as low as 580 for a 3.5% down payment)

– Down payments as low as 3.5%

– Issued by federally approved lenders

– Requires mortgage insurance premiums both upfront and annually

– Limited to certain types of properties

VA Loans

– Available to veterans, active-duty service members, and certain members of the National Guard and Reserves

– No minimum credit score required by the VA

– No private mortgage insurance (PMI) required

– No down payment required

– Requires a funding fee unless the borrower is exempt

– Must meet service requirements

USDA Loans

– Targeted at rural home buyers

– No down payment required

– Competitive interest rates

– Income limits apply

– Property must be located in an eligible rural area

– Requires a guarantee fee, similar to mortgage insurance

Conventional Loans

– Might be available with higher interest rates

– Private lenders offer various terms and conditions

– Higher credit scores usually required for better terms

– Private mortgage insurance required if down payment is less than 20%

Subprime Loans

– Specifically designed for low credit borrowers

– Flexible credit requirements

– Higher interest rates and fees

– Greater risk of foreclosure due to unfavorable terms

Hard Money Loans

– Based on the property’s value rather than borrower’s credit

– Short-term loans usually used for investment properties

– Very high interest rates

– Usually require significant equity or a large down payment, and are intended for very short-term financing

Disclaimer: The information provided in this table is for general informational purposes only and should not be considered as financial advice. Mortgage options, terms, and eligibility requirements can vary significantly between lenders and are subject to change based on federal regulations and economic conditions. 

Top 5 Resources for a 504 Credit Score

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