Pop Quiz: What do 1 out of 15 people have?
Answer: A credit score below 500. And perhaps an STD.
FICO scores run on a 300 to 850 scale and reportedly only 6.3% of the US population has a 300-499 score. So I hate to be the bearer of bad news, but if you have a 500 credit score you are about as low as you can go (at least from a credit standpoint).
The silver lining? You can really only improve from here and it’s totally possible to start building your credit now.
1. You won’t qualify for any traditional credit cards
With this low of a score, you are unlikely to qualify for any regular, non-secured credit card. You probably won’t even be able to get a plain vanilla Walmart store card with that low of a score.
So my first bit of advice is to try out this tool right now and find out in 60 seconds if you are matched for any credit card offers. IF you are matched for an offer, then go for it!
Use this tool since it matches you with offers. Don’t screw up your credit even more by randomly applying for cards from other places and hoping something sticks. Why? Because doing so might drop your score even further (or at least put inquiries on your credit report, which can make you look even riskier to lenders, if that’s possible). Having too many can negatively impact your score, wiping out any gains you might experience from good behavior. So the lesson is to only apply for a card for which you have a good chance of qualifying, and this handy Cardfinder tool won’t affect your credit at all.
Your score – in context
Here’s what various score ranges mean (based on definitions from Experian regarding FICO scores):
500 credit score – what it means
|800+||Excellent||Consumers in this range can expect easy approval for credit products and the best terms.|
|740-799||Very good||Consumers in this range can expect to qualify for a wide range of products and are eligible to receive favorable terms.|
|670-739||Good||Consumers in this range may vary in their qualification for credit products. Those at the lower end may get denied for premium products, or may have less-favorable terms/lower credit limits. Still, getting approved for a card or loan is absolutely feasible.|
|580-669||Fair||Consumers in this range can expect higher interest rates and may not qualify for some credit products. Results will vary, based on whether the score is due to thin credit history or a troubled one (bankruptcies and late payments).|
|579 and lower||Poor||Consumers in this range will have trouble qualifying for most credit products.|
2. Avoid other cards that hit you with excessive fees
There are a small handful of unsecured cards out there that will probably approve a credit score of 500. When you see the fees they charge, you will understand why.
Example: First Premier Bank MasterCard
With this not so lovely offer you will pay a $95 processing fee and $75 annual fee. And what do you get in return? A measly $300 credit limit. Oh yeah and a 36% interest rate to go along with it.
Does your credit really stink? 500 is less than fresh, but that does not mean you deserve to get taken for advantage of just because you don’t have a ton of options available. Don’t fall prey to these fee-harvester sub-prime credit cards from issuers like First Premier. They make boatloads of money on the backs of working folks who have few other options. Granted, they have to charge more because the loss rates can be pretty shocking in the subprime market. But still, they take advantage of the lack of competition.
3. Secured cards are your best (and probably only) choice
So with the exception of First Premier Bank, the only credit cards for a 500 credit score are going to be secured.
What does this involve? A security deposit. In exchange for ponying up a deposit, you will be able to get a card. But don’t worry, the deposit will be refundable whenever you choose to cancel your card plus many banks that issue these cards will even pay you interest on the funds, so it’s just as good as putting the money in a traditional bank savings account.
The good news is that major issuers like Capital One and Discover offer secured credit cards along with their other customer-friendly features like free access to FICO credit scores. That can be a huge perk since you can watch and see how your responsible credit behavior builds your credit score over time. Here is my favorite credit card to rebuild credit. Its fees are very reasonable (and I think you will agree with me too).
Now as far as getting a mortgage or auto loan with a 500 credit score…that’s probably a pipe dream (or perhaps you’ve been smoking something from a pipe). Just get a secured credit card and build some solid credit over time – things will start looking up after a year or two of using secured credit responsibly. Then, you can enjoy fair credit terms for all types of loans – even the fanciest credit cards in the market that allow you to earn lucrative rewards.
This post was written or last updated April 11, 2016