Your credit score may not be a number you think about regularly. But it’s one you’re apt to focus on when you’re looking to borrow money, whether in the form of a loan or a new credit card.
Now, you may be aware that a credit score in the 500 range isn’t really a great one. And unfortunately, having a credit score below 500 might make it near impossible to get approved to borrow, period.
What a credit score below 500 means for you
Experian says that if your credit score is between 300 and 579, it’s considered very poor. So if your credit score is below 500, it may be really difficult for you to get approved for a loan or credit card. And if you do manage to get approved for credit of some sort, you should expect a much less favorable interest rate.
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That could make your debt extremely costly and, worse yet, increase your risk of falling behind on payments. Falling behind on payments could cause — wait for it — even more credit score damage.
Also, with a credit score below 500, you may be required to put down a security deposit when you sign up for utility services. Similarly, you may have a hard time getting a cellphone plan due to your poor credit.
As far as mortgages go, it generally takes a minimum credit score of 620 to qualify for a conventional home loan. With a score below 500, a conventional mortgage is off the table. While you can get an FHA loan with a credit score of 500, that’s the lowest you can go. So basically, if your credit score is below 500, you’ll probably need to wait to buy a home due to being unable to qualify for financing.
How to boost your credit score
A credit score below 500 is going to limit your borrowing options in a really big way. If your credit score needs work, try taking steps to boost it.
The more timely you are making payment on your debts, the more your credit score might improve, since your payment history carries more weight than any other factor when calculating that number. If you don’t have debts you’re paying off because your score is so low you can’t qualify to borrow, you may feel trapped in a Catch-22 situation. But there may be one solution.
One thing you can do in that case is apply for a secured credit card. A secured credit card has you put down a deposit, and you can then charge expenses against that limit.
You can qualify for a secured credit card even with really poor credit because you’re not borrowing money from the issuer so much as charging expenses against a deposit you’ve put down. In other words, your credit card issuer really isn’t taking on any risk. Then, as you make your secured credit card payments on time, that positive activity is added to your payment history, which could give your score a lift.
Sometimes, all it takes is a few delinquent payments to send your credit score below 500. But it’s important to try to do what you can to raise your score so you have the option to borrow money when you need to.
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