Is 500 a Good Credit Score?

Having a credit score of 500 can feel frustrating You may wonder if 500 is a good credit score or if you can get approved for any loans. The truth is, a 500 credit score is considered poor. But the good news is there are still options, and you can take steps to raise your score over time

What Credit Score Ranges Mean

To know if a credit score of 500 is good, it helps to know the different score ranges. Credit scores usually fall between 300 and 850. Here’s how the main credit scoring models divide those score ranges:

• FICO Scores
  • 800-850 = Exceptional
  • 740-799 = Very Good
  • 670-739 = Good
  • 580-669 = Fair
  • 300-579 = Very Poor
• VantageScores
  • 781-850 = Exceptional
  • 661-780 = Good
  • 601-660 = Fair
  • 300-600 = Poor

As you can see, a FICO score of 500 is in the very poor range, while a VantageScore of 500 is poor. So a 500 credit score is below average and considered a bad or poor score by both main scoring models.

Why 500 is a Bad Credit Score

Lenders use credit scores to figure out how risky it is for them to lend you money. The higher your score, the less risky you generally look. There are a few things that make a credit score of 500 bad:

• Higher Risk of Default—Research shows that people with scores below 579 are much more likely to seriously fall behind on their debts than people with higher scores.

• Credit History Problems – Low scores can signify previous issues like bankruptcies, foreclosures, late payments, and collections. These issues make lenders hesitant.

• Lack of Credit History—A score of 500 could also mean that your credit file is thin and doesn’t have enough history for us to evaluate. Limited history can still be seen as risky.

While a 500 credit score is below average, it doesn’t mean you’re completely out of luck. Let’s look at what credit options may still be available.

Credit Cards for a 500 Credit Score

The best credit cards for a 500 credit score are usually secured cards. With secured cards, you make a refundable security deposit that becomes your credit limit. This gives lenders confidence to approve consumers with poor credit.

Here are some top secured card options for a 500 credit score:

• Discover it® Secured Credit Card
• Capital One Secured Mastercard
• OpenSky® Secured Visa® Credit Card

You may also have a shot at high-fee cards for bad credit if you meet other eligibility requirements. Examples include the Credit One Bank Platinum Visa and First Access Visa® Credit Card.

While you may qualify, beware that these unsecured cards charge expensive fees. Secured cards are generally a better option for rebuilding credit.

Personal Loans for a 500 Credit Score

Personal loan approvals will be very difficult with a 500 credit score. Most lenders view this as high-risk and would either deny an application or offer very unfavorable rates and terms.

If you have poor credit but need funds, here are some personal loan alternatives:

• Credit builder loans – These are offered by credit unions to help you establish credit history.

• Payday alternative loans – Offered by some credit unions at lower rates than payday loans.

• Secured personal loans – These require collateral and may be an option with bad credit.

• Co-signer – Adding someone with good credit can help you qualify and get better rates.

• Peer-to-peer lending – These non-traditional lenders may offer personal loans with 500 credit.

While possible to get approved, any personal loan offer you receive with a very poor score will likely have an extremely high APR. Make sure you can afford the payments before accepting.

Auto Loans for a 500 Credit Score

Auto loan approvals will also be difficult with a credit score of 500. Less than 7% of auto loans go to consumers with scores below 540. You can improve your chances by:

• Comparing financing from multiple lenders including banks, credit unions, and dealerships.
• Considering a longer loan term so payments are lower.
• Making a large down payment to offset risk.
• Finding a co-signer with better credit, if possible.
• Looking into buy here pay here (BHPH) dealerships.

However, interest rates will still likely be over 10% with poor credit. Weigh the overall cost before committing to an expensive auto loan.

Mortgages for a 500 Credit Score

A 500 credit score makes getting a mortgage very challenging. Typical minimum scores for conventional loans are 620-660. Less than 5% of mortgages go to those with scores below 620.

You may qualify for an FHA loan, which allows scores as low as 500 with a 10% down payment. But mortgage lenders will view you as a risky borrower and interest rates will be much higher compared to those with good credit.

Work on boosting your score before applying for a mortgage if possible. Paying interest rates above 7% for 30 years adds a lot to the total loan cost. Each extra point you raise could make a difference.

Is 500 a Good Credit Score? The Verdict

While it is possible to get approved for credit with a 500 score, the terms you qualify for will generally be unfavorable. Lenders see this score as indicating high risk, so you can expect high APRs and extra fees.

A 500 credit score is below average and considered poor by both FICO and VantageScore. It signifies past issues with credit or a thin history that makes lenders hesitant to approve applications.

The good news is that with time and effort, a 500 score can be improved. Responsible credit habits like making on-time payments, lowering balances, and keeping accounts open will gradually raise your score. Be patient, and focus on building healthy money management behaviors.

While 500 is not a good credit score overall, it’s also not an impossible place to start rebuilding from. Monitor your progress, and you will see your credit health trend upward. Stay determined!