September 3, 2020
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Is a 500 Credit Score Bad?
How You Can Increase Yours
So, is a 500 credit score bad? First let me just say, a 500 credit score is not the end of the world. So if you’re reading this, worrying that you’ll never be able to improve your score or get credit again, keep reading. Any score is temporary and this article is aimed at encouraging you to do take your financial future into your hands and do something about it now.
Credit is more important than ever and with the economic hardships so many of us are facing, a good credit score is something many of us try hard to attain or maintain. Let’s take a look at what a good credit score is and how we can all get one.
What is a Credit Report?
A credit report is generated by a credit bureau and contains all of our credit histories as reported to each bureau. Not every report will be identical because each credit bureau will be provided different information from your creditors. They should all include:
1. your recent addresses
2. your creditors
3. your payment history with each going back seven years
4. any public records that may exist as it pertains to a creditor on your report (including court judgments, liens, bankruptcies, etc)
5. inquires that have been made within the past two years. Inquiries on your credit report reflect prospective creditors who have requested your credit report from a credit bureau for purposes of evaluating your creditworthiness.
Too many inquiries in a short period of time can reduce your score, just as late or missed payments can. Creditors also run routine inquiries on us but those are not factored into our score.
What is a Credit Score?
A credit score is a number that is assigned to everyone that represents our creditworthiness based on an algorithm. It is designed to show how likely an individual is to repay a debt or loan based on the numbers computed by a scoring system.
This score is in large part based on information found in a credit report created by one of several credit reporting agencies and the scoring model used by each credit bureau. In addition to the scores generated by the credit bureaus, there is also a separate FICO score that is compiled by Fair Isaac Corporation.
Most credit scores range from 300 to 850. Scores ranging from 300 to 500 are generally considered very poor while scores between 800 to 850 are considered excellent.
There is obviously a lot of gray area in between and as your score increases it will go from very poor to poor to fair to good to very good and finally, excellent. Keep reading to see how you can raise your credit score.
What is a Credit Bureau?
There are three major credit reporting bureaus in the United States: Transunion, Experian, and Equifax. There are other companies that provide credit scores (like FICO and VantageScore) but these are the main three credit bureaus that provide complete reports.
If a new employer, landlord, or other creditor needs to pull your credit report in the U.S., they will likely use one of the three credit bureaus. They each collect and maintain our data and sell them to third parties in the form of a credit report.
Each credit bureau is a public, for-profit company, but they are all governed by the Federal Credit Reporting Act, which governs how each bureau must operate. Because they are all separate entities, they don’t all reflect the same information and they don’t all use the same scoring model.
You could have five loans and they may not all appear on the same reports. They could all appear on all of the reports and your scores may still be different because they may use different scoring models. This can lead to you having different scores with each bureau.
For example, let’s say you have two credit cards and a personal loan. You are always on time with your credit card payments but you have fallen behind on your loan. Your credit score with Equifax and Experian is 600 but you have a 500 credit score with Transunion. How is this possible?
If Equifax and Experian are reporting your credit cards but not your loan, and Transunion is not reporting your credit cards but is reporting your loan, the Transunion score will likely be lower.
It all depends on each credit bureau’s relationship with your particular creditors or lenders and which ones they will report. This has a huge impact on your score.
What is FICO?
Is FICO the Same as a Credit Score?
A FICO score, compiled by Fair Isaacs Corporation, is very similar to a credit score as it is also a score that is designed to predict a person’s creditworthiness. Different variations of the FICO scoring model are used by the credit bureaus.
A FICO score is basically a summary of your credit report and is based on your payment history. It assigns a score only, where a credit report gives more a complete picture or story of your credit history.
Most of the top lenders rely on the FICO score, which may be different from the scores you receive from the credit bureaus.
If you have a poor FICO score it may be easier to use a lender that relies on reports from the credit bureaus because a credit report may better explain your particular situation whereas the FICO score, which is just a number, will not.
How Can I Get a Copy of My Credit Report From The Credit Bureau?
You are entitled to a free copy of your credit report from each credit bureau once every year. You are also entitled to a free report if you apply and are denied credit.
Simply contact the credit bureau that provided your report to the creditor and request a free report. At the time of this article their contact information is as follows:
EquifaxPhone: 800-685-1111 ExperianPhone: 888-EXPERIAN (397-3742) TransUnionPhone: 800-909-8872 You can also go to www.annualcreditreport.com and request a free report there each year.
What is Considered a Poor Credit Score?
This chart is based on the FICO 8 scoring chart, just one scoring model used by FICO. It gives you an idea of where you may land with your credit score. Keep in mind that not every credit bureau uses the same model. This is just to give you a ballpark figure.
What if I Have a 500 Credit Score?
If you have a 500 credit score chances are you have run into difficulty paying some of your bills on time. You may have experienced a serious event or simply been short on cash, causing you to fall behind on your bills. With each late payment or missed payment, your credit report will be reduced. There are other things that may be affecting your credit:
Improve Your Payment History:
The most important factor is your payment history. Paying on time is the best way to increase your score every month. Setting up automatic payments can help you stay on track.
Decrease Credit Usage:
Allowing credit cards to reach the limit will negatively impact your score. Try to pay down your cards as much as possible to see an increase. Try to stay under 30% of the available credit to get the most impact.
Increase Length of Credit History:
The longer you have a credit history the better. No credit history can actually work against you.
Limit Credit Inquiries:
When you ask for a credit and they request your credit report from a credit bureau that’s called an inquiry. Too many of these will reduce your overall score. Try not to apply for too many credit cards or loans within a two-year period. It may appear that you are struggling financially and are trying to get more credit immediately.
Vary Your Credit Type/Mix:
A mix of different types of credit can have a small but positive impact on your overall credit score.
Can I Raise a 500 Credit Score?
Yes, you can. If you have a 500 credit score chances are you’re wondering “how long does it take to go from a 500 credit score to a 700?” Well, nobody can predict this because of the scoring models used by the credit bureaus.
There are ways to increase it. In addition to the factors that impact your score above, you can seek help from a professional credit counseling company. They review your credit report and offer you advice that is specific to your particular situation.
How Can I Dispute My Credit Report?
If there are errors on your credit report you can dispute them with the applicable credit bureau. A credit counseling or credit repair company can help you dispute errors on your credit report to help you raise your score.
This is the fastest way to improve a 500 credit score because once the error has been brought to the credit bureaus’ attention they have thirty days to prove it’s correct or remove the negative mark from your report. This company can help you dispute your credit score.
500 Credit Score Credit Card
If you have a 500 credit score you may be having a hard time getting new credit, particularly new credit cards. Credit Karma is a website that can provide you with a credit report and score based on the information reported by the credit bureaus While I can’t vouch for the validity of Credit Karma’s scores, they will let you know which 500 credit score credit cards may be available to you.
This is not your FICO score and the only way to be sure of your exact credit score is to get it directly from each credit bureau, but Credit Karma offers other services that may be beneficial. For example, they give you a list of companies that may be willing to offer you credit, based on the credit score they assign to you. This may be a good place to start.
If you decide to get professional help from a credit counselor you may want to ask them for a list of companies that may be willing to offer you credit as well. Just be careful not to request too many in a short period of time. Remember, those inquiries can further hurt your credit score.
How Can I Protect My Credit?
Unfortunately, with modern technology comes the threat of cyber threats. Hackers out there do their best to obtain our personal information to create fraudulent accounts, to steal our identities, and worse.
We have to be diligent about keeping our social security numbers safe to help minimize this threat. Do not offer it to anyone unless you’re sure it’s for a legit purpose in a secure manner.
There are many companies out there that offer services to ensure your credit report remains safe. They monitor the activity on your credit report to protect you from hackers and other fraudulent activity.
Many of these companies also offer unlimited access to your credit scores and reports. If you want help in protecting your credit, try one that offers a free trial period and see whether you like the services they offer. Myfreecreditscore.us offers these services and more.
Why is Good Credit Important?
Having good credit is important because it can unlock savings and benefits. These are just a few:
- You could possibly gain access to no interest or low-interest loans, saving you money. The difference you save in interest can save you a lot of money, especially on large purchases like cars and houses. You have more options in terms of credit cards. More choice allows you to obtain credit cards that will provide you with lower interest rates and rewards programs.
- Utility companies are less likely to require a security deposit.
- Insurance companies will likely charge you less with a good credit score.
- Because some landlords require a credit check, good credit may give you more housing options.
Good credit just gives you more options and saves you money in the long run.
Where Can I Get Help Raising my 500 Credit Score?
If you want to raise your score you can try any of the methods I mentioned or get help from professionals. The Credit Assistance Network can work with you to help you clean up your credit report so you can get on the road to a higher credit score! If you have a 500 credit score or want to increase your score, you definitely can. Take advantage of the tips mentioned here and reach out to a professional for their advice. Each person’s situation is different and yours should be examined to determine the best steps for you. Good luck on your journey to perfect credit!
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