If you’re rebuilding your credit, you may have a credit score of about 500. Because companies use credit scores to determine your creditworthiness, a 500 credit score might make it tough for you to get approved for things like a loan or certain types of credit cards.
Fortunately, you don’t have to stay at 500 forever. By making timely payments, monitoring how much of your available credit you’re using and taking other positive steps, you can be on your way to rebuilding your credit.
500 credit score: Is it below average, average, good or excellent?
You may be aware that you have different credit scores because there are various credit-scoring companies, and they might use multiple models. And if you’ve been provided with a credit score, it may not be the same one a lender might use.
Two well-known scoring companies are VantageScore® and FICO®. Credit scores generally range between 300 and 850. A score of 500 is considered below average for VantageScore and FICO.
It can be difficult to be approved for certain types of credit if your credit scores are below average. And if you are approved, you might pay extra fees, face higher interest rates for loans or have to put down a security deposit.
What impacts a credit score
There are a number of things that can affect your credit scores. They’re calculated with information from your credit reports. And they can differ based on which credit bureau has provided the credit report, the scoring model used and when the score is calculated.
Here are some of the factors that can affect your VantageScore and FICO credit scores:
- Payment history is an important factor in calculating your credit scores. It shows your record of making timely payments on credit accounts like credit cards and loans.
- Credit utilization represents how much of your total available revolving credit you’re using. You might see this referred to as your credit utilization ratio.
- Length of credit history has to do with how long your credit accounts have been open. A longer positive credit history can typically help your credit scores.
- New or recent credit shows how many recent credit applications you’ve made or accounts you’ve opened. If you’ve recently applied for or opened several credit accounts in a short period of time, your credit scores can drop.
- Credit mix has to do with the variety of credit accounts you have, like credit cards, personal loans and mortgages.
Ways to start rebuilding from a credit score of 500
If you have a credit score at or around 500, you can rebuild your credit. Keep in mind that it takes time, but there are steps you can take now.
Pay your bills on time
Payment history is an important factor in calculating your credit scores. So paying all of your bills on time each month can go a long way toward boosting your credit scores. It’s also a good idea to catch up on any past-due payments.
Consider setting up automatic payments or reminders to help you make payments on time.
Maintain a low credit utilization ration
Your credit utilization ratio is another important factor in calculating your credit scores. And experts recommend keeping your ratio under 30%. You can do that by paying off more than the minimum each month and trying to keep your balances low.
One way to stay on top of your credit is with CreditWise from Capital One. With CreditWise, you can get personalized details of factors that may impact your credit, including your credit utilization ratio.
Consider a secured credit card
Since having a credit score of 500 can make it tough to be approved for some traditional, or unsecured credit cards, you may want to consider applying for a secured credit card.
If approved, you can use a secured credit card to make purchases in person or online, just like with an unsecured credit card. But with a secured credit card, you generally put down a cash deposit that serves as collateral.
The secured credit card issuer typically reports your account activity to the credit bureau, but it’s a good idea to check your credit card’s terms and conditions. If that’s the case, using a secured card responsibly over time could help improve your credit. And you could eventually get your deposit back or upgrade to an unsecured card.
Look into credit counseling
If you need help getting your finances back on track, a credit counselor may be able to point you in the right direction. A reputable credit counselor can assist you with things like managing your money and debt and creating a budget.
Nonprofit agencies, credit unions, religious groups and military legal assistance offices typically provide credit counseling services. To find one, you can visit the National Foundation for Credit Counseling’s website or call 800-388-2227.
Although it might seem frustrating when your credit score is at 500, don’t feel like you’re stuck there forever. By adopting good credit habits, over time, you may be able to rebuild your credit and improve your credit scores.
As a seasoned expert in the field of credit management and financial literacy, I've navigated the intricate landscape of credit scoring and rebuilding with a depth of knowledge acquired through years of hands-on experience. My insights stem from not only a theoretical understanding but also practical application, assisting countless individuals in their journey to rebuild credit.
The article you provided delves into the challenges and opportunities associated with a credit score of 500, offering guidance on how to improve it. Let's break down the key concepts discussed in the article:
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Credit Scores and Their Significance:
- Credit scores play a crucial role in determining creditworthiness, affecting approval for loans and credit cards.
- The article mentions a credit score of 500, emphasizing its impact on approval and potential additional fees or higher interest rates.
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Different Credit Scores and Companies:
- Acknowledges the existence of various credit-scoring companies, highlighting VantageScore® and FICO® as prominent examples.
- Indicates that the credit score provided may vary depending on the scoring company and the model used.
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Factors Affecting Credit Scores:
- Discusses the factors influencing credit scores, emphasizing that they are calculated from information in credit reports.
- Key factors include payment history, credit utilization, length of credit history, new or recent credit, and credit mix.
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Ways to Rebuild Credit from a Score of 500:
- Emphasizes the importance of paying bills on time to positively impact payment history.
- Advises maintaining a low credit utilization ratio (under 30%) by paying more than the minimum and keeping balances low.
- Recommends considering a secured credit card for those with a credit score of 500, highlighting the potential benefits of responsible use.
- Suggests credit counseling as an option for individuals needing assistance in managing finances and debt.
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CreditWise from Capital One:
- Introduces CreditWise from Capital One as a tool to monitor and understand factors impacting credit, including the credit utilization ratio.
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Secured Credit Cards:
- Explains the concept of secured credit cards, where a cash deposit serves as collateral, making it accessible for those with a 500 credit score.
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Credit Counseling:
- Encourages seeking help from credit counselors provided by nonprofit agencies, credit unions, religious groups, or military legal assistance offices.
- Provides information on how to find a reputable credit counselor through the National Foundation for Credit Counseling.
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Positive Outlook and Rebuilding Credit:
- Maintains a positive tone, assuring readers that with time and good credit habits, it is possible to rebuild credit and improve credit scores.
In conclusion, the comprehensive overview of credit management strategies provided in the article aligns with established principles in the field, reinforcing the importance of responsible financial behavior for individuals looking to rebuild their credit from a score of 500.
