Your Credit Score falls within the ‘Very Bad’ range of 300 to 579 on the FICO® Score. As a result, a 501 credit score is bad.
A 501 score hints to financial institutions like Credit Card companies, lenders, banks, and other utility companies that you have a bad credit history. Your credit history contains all the information leading to your 501 Credit Score. This makes you untrustworthy and lowers your chance of getting a credit card, mortgage, auto loan, etc. So, my friend you need to get a good FICO® Score. How? Keep reading.
What is a good Credit Score?
Generally, a good credit score is an indication of your stellar credit history. This is usually between 670 to 850 on the FICO® Score; which is anything from the ‘Average’ range of 670 to 739. In lay terms, any score above 670 is considered good, and a 501 credit score is not.
To credit card companies, a good credit score means you will be a great client. You will pay your credit card debts on time and not just dump them once they max out. And probably run to another credit company to seek refuge. With a good credit score, you will get better credit card deals such as lower fees, and higher card limits. A 501 credit score cannot guarantee you this.
To banks and online lenders, a good FICO® Score means you are a good debtor. In the past, you have been paying your loans on time, and have an exceptional relationship with your present lenders. It means you have little or no due loans, and will never evade repayments if they offer you a loan.
Utility companies such as water services, telephone companies, and your landlord or homeowner trust that you will pay your bills on time with a good credit score. They do not want to ever have trouble with your payments as and when due.
However, a good FICO® score does not usually guarantee approval of loans, credit cards, or other services. Other factors like level of income, and employment history or status, which may indicate your ability to repay your loans or clear debts and bills also come into play. Similarly, a bad credit score does not mean sure denial of loans or related services. So, no need to beat yourself up about bad credit. At least, not yet!
What does a 501 Credit Score Mean?
With a 501 Credit Score, transactions and deals with financial institutions like banks, and online lenders, can prove abortive. At best, banks or lenders will offer you bad credit loans which are small in and charge you higher rates. The best bad credit loans are usually around $2000 to $10000 with as high as 35.99% Annual Percentage Rate (APR).
Your new landlord might deny you an apartment for this reason, and you may have trouble using some pay later services that consider credit history.
How to Improve a 501 Credit Score (Credit Boost Solutions)
A low FICO® score is not the end. Why? Because you have a chance of improving it. You are probably not a bad creditor since this also happens when you have just started building your credit. You have probably only taken a loan or two with only one account all time.
When your Credit Reports are generated to determine your FICO® score, many factors are considered. These determinants have direct impacts on your score, and they are what you should note while planning your credit boost solutions. Your credit score determining factors according to their degree of impact are:
- Payment History – 35%
- Credit Utilization – 30%
- Age of Credit Accounts – 15%
- Credit Mix – 10%
- New Credit or Hard Inquiries – 10%
These are steps or methods you need to take to improve your 501 credit score:
Generate and Study your Credit Reports
The first step to take when trying to improve your credit score is to study your most recent credit reports. A credit report allows you to understand what is impacting your score; either positively or negatively. This in turn gives you an idea of what steps to take to improve them if you know the signals. Or you can decide to employ the services of a credit management or repair company (recommended but costly).
Information on your credit report is broken down into:
- your identity
- existing credit card information
- your credit limit and total
- payment history (monthly and recent payment)
- your account numbers (past and present)
- highest account balance
- recent account balance
- closed accounts
- co-signer information
- credit inquiries (soft and hard)
- dates of your accounts opening
Now, you are probably wondering what it takes to get your credit reports, and that’s straightforward. Many credit reporting companies will send you credit reports for free a few times a year. CreditKarma is of those companies. The best in my opinion. They offer free credit reports with no credit card details required directly from two credit bureaus; Equifax and TransUnion. Whichever you prefer.
Additionally, you will also get the chance to monitor your reports from time to time for free. This way, you will when your score changes, and why.
Monitor your Reports and File Disputes
When credit reporting companies send your reports, you may find some discrepancies in them. There might be some activities that are suspicious and are not from you, especially when they have negative impacts. The 501 credit score could have been a mistake, and you can prove that from your monitoring what gave the blow to your credit reports. The CreditKarma mobile app can also help you deal with this. Try it out! When this happens, file a dispute directly with the Credit Bureau that generated the report. You never know what rise the correction could give to your score.
Make Timely Bills and Credit Payments
This is the most important factor that determines your credit score; your payment history. Always make sure you make your payments before they are due since by then, they will not hurt your score. In short, avoid paying late.
To make this possible, keep track of your payments and set alerts for them at least a week before they are due. Additionally, always make sure you do not take more loans that you can pay at the end of the month. Do not be tempted by your need for money at that particular time, unless there is a guarantee. Well, 90% of the time, there is no guarantee.
Limit your Credit Utilization to Below 30%
It is a no-brainer that maxing out your credit cards is a very bad idea. But did you know a high balance also negatively impacts your credit score? That might explain your 501 credit score. Well, let’s find out!
Keeping a low balance across all your credit accounts is a good indicator of your credit reports. What is meant by a balance is how much you have spent from your credit limit which you need to pay back. Hence, the credit utilization rate is the amount spent (balance) divided by your credit limit and multiplied by 100%. See the illustration – (amount spent or balance / credit card limit) * 100%.
Still confused? Stay with me. Say you got a credit card with a $4000 limit, and you spend $900 on the card. This brings your credit utilization rate to 22.5% for that account. Uh-oh! Forgot you suck at math. So take your calculator and punch in (900 / 4000)*100% and =. Got it? Nice!
You need to keep this rate very low in all your accounts or else, a high rate from only one of your cards could impact the score negatively; taking a deeply below 501. For example, if Credit A has a credit utilization rate of 25% and Credit B is at 50%, that brings your credit utilization rate to 37.5% ((25 + 50) / 2 ) which is very bad. Remember, the lower your utilization rate, the better your credit score.
Keep Old and New Accounts in Good Standing
As explained above high credit utilization will not do your account any good, having a low balance on a credit account might not just cut it. Sometimes, you may have some old credit accounts with no balance at all, but some new ones with high balances. These dormant accounts are helping you because they have low utilization; 0% for a zero balance. This works in your favor if you have a high utilization rate for another account by balancing out. For example, 0% utilization on an old account and 40% on a new account will bring your credit utilization to 20%, provided the accounts have the same credit limit.
In addition, the ages of the old accounts also help in your credit reports, and closing them will only remove their history from your future reports. This causes your score to get lower if they contribute a significant amount of positive impact to it.
So, what you should do is have as many credit accounts as you can, make efforts to never miss your payments, and keep your spending or balance on each very low. This will help you build your payment history and keep your credit utilization the lowest. Moreover, keeping multiple credit accounts is a factor contributing 10% to your credit score. DO NOT OVERDO IT!
Take Credit Builder Loans
Credit builder loans are loans taken mainly for the case of building your credit score. You probably do not even need it, and you can pay them off as and when due. These loans are usually short-term, low rates and will help to build your payment history which is the main contributor to your credit score.
In case you are considering taking a mortgage, auto loan, or other big loans in the future, taking credit builder loans will help you increase your 501 credit score fast. Before you know it, you will have your required FICO® score.
Avoid Hard Inquiries at all Cost
There are two types of inquiries; soft and hard. Soft inquiries are not harmful or helpful to your credit score since they are either done by you or a company you are already in business with. However, a hard inquiry has a negative on your score; a whopping 10% that makes a difference.
Hard inquiries occur when a new business or credit company runs a credit check on you. This happens when you are trying to open a new account, apply for another credit card or take a loan. Always try to avoid this since it will make your present credit score go lower; 501 in your and that will be bad.
Take a Debt Consolidation Loan
Debt consolidation loans are usually very large loans that are taken to repay other loans. For example, if you have about 3 different loans you had taken in the past and have been unable to repay, you can approach a lender for debt consolidation. These allow you to pay off all your debts to other lenders at once and focus on paying the total loan back to your new lender, usually at a much cheaper rate.
Conclusion of a 501 Credit Score
A 501 credit score is very bad because is lower than 670 which is considered Average or Good. However, it is not the end of the world. You can take action to improve your credit score with some credit-building solutions in this post. And in no time, you should have a perfect score and join the 800 Club.