Your score is in the range of 300 to 579 points, which is considered very poor. A 505 FICO® score is well below the average credit score.Many lenders choose not to do business with borrowers whose scores fall into the very bad range because they have unfavorable credit. Credit card applicants with scores in this range may have to pay additional fees or make deposits on their cards. Utilities may also require you to post security deposits for equipment or service contracts.
16% of all consumers have FICO® scores in the very poor range (300-579).
Approximately 62% of consumers with credit scores below 579 are likely to become seriously delinquent (i.E., go more than 90 days past due on a debt payment) in the future.
How to improve your 505 credit score
The bad news about your FICO® score of 505 is that it is far below the average credit score of 704. The good news is that there are many ways to increase your score.
99% of consumers have FICO® scores above 505.
One smart way to start building a credit score is to get your FICO® score. Along with the score itself, you will receive a report that lists the major events in your credit history that lower your score. Because this information comes directly from your credit history, it can highlight issues you can address to improve your credit score.
How to get beyond a very poor credit score
FICO® scores in the very poor range often reflect a history of credit missteps or mistakes, such as. B. Multiple missed or late payments, defaulted or foreclosed loans, and even bankruptcy.
Among consumers with FICO® scores of 505, 19% have a credit history that reflects being 30 or more days past due in the last 10 years.
Once you are familiar with your credit report, its contents, and its impact on your credit scores, you can take steps to build your credit. As their credit behavior improves, their credit scores tend to follow suit.
What affects their credit score
While it is useful to know the specific behaviors in their own credit history, the types of behaviors that can lower their credit score are commonly known. Understanding them can help you focus on your credit score-building tactics:
Public information: when bankruptcies or other public records appear on your credit report, they usually hurt your credit score badly. Settling liens or judgments at the first opportunity can reduce their impact, but in the case of bankruptcy, only time can reduce their harmful impact on your credit scores. A chapter 7 bankruptcy stays on their credit report for up to 10 years, and a chapter 13 bankruptcy stays there for 7 years. Even though their credit score may begin to recover years before a bankruptcy falls off their credit file, some lenders may refuse to work with them as long as there is a bankruptcy on their record.
The average credit card debt for consumers with FICO® scores of 505 is 2.734 USD.
Credit utilization. To calculate a credit card's credit utilization, divide the outstanding balance by the card's credit limit and multiply by 100 to get a percentage. To calculate your total utilization rate, add up the balances on all your credit cards and divide by the total of your credit limits. Most experts recommend keeping utilization on a card basis and below 30% overall so as not to hurt their credit score. Utilization contributes up to 30% to their FICO® score.
Late or missed payments. Paying bills consistently and on time is the best thing you can do to promote a good credit score. This can account for more than one-third (35%) of their FICO® score.
Length of credit history. All other things being equal, a longer credit history tends to result in a higher credit score than a shorter history. The number of years you have been a credit user can affect up to 15% of your FICO® score. Newcomers to the credit market cannot change this factor much. Patience and diligence to avoid bad credit behavior will lead to score improvements over time.
Total debt and loan mix. Credit scores reflect their total outstanding debt and the types of credit they have. The FICO® credit scoring system tends to favor users with multiple credit accounts, and a mix of revolving credit (accounts like credit cards that allow borrowing within a certain credit limit) and installment credit (loans like mortgages and auto loans, with a set number of fixed monthly payments). If you only have one type of credit account, expanding your portfolio could help your credit score. Credit mix is responsible for up to 10% of your FICO® score.
Current credit activity. Constantly applying for new credit or credit cards can hurt your credit score. Credit applications trigger events known as hard inquiries, which are recorded on their credit report and reflected in their credit score. In a hard inquiry, a lender receives your credit score (and often a credit report) for the purpose of deciding whether to lend to you. Hard inquiries can cause credit scores to drop a few points, but scores usually recover within a few months if they keep up with their bills – and don't make additional credit requests until then. (checking your own credit is a soft inquiry and does not affect your credit score.) new credit activity can account for up to 10% of your FICO® score.
Improve your credit score
There are no quick fixes for a very bad credit score, and the negative impact of some problems that cause very bad scores, such as bankruptcy or foreclosure, only diminishes over time. You can immediately start adopting habits that favor credit score improvements. Here are some good starting points:
Consider a debt management plan. If you are overextended and having trouble paying your bills, a debt management plan could provide relief. They work with a nonprofit credit counseling agency to negotiate a workable repayment plan, effectively closing their credit card accounts in the process. This can greatly lower your credit scores, but it is less draconian than bankruptcy, and your scores can recover more quickly from it. Even if you decide this is too extreme a step for you, the advice of a credit counselor (as opposed to a credit repair company) can help you identify strategies for building stronger credit.
Think about a credit builder loan. Credit unions offer several variations of these small loans to help people build or rebuild their credit histories. In one of the most popular options, the credit union puts the amount you borrow into a low-interest savings account (instead of giving you the money directly). When they have repaid the loan, they get access to the money plus the interest it generated. It's a smart savings method, but the real benefit comes when the credit union reports its payments to the national credit bureaus. Make sure before you apply for a credit builder loan that the lender reports payments to all three national credit reporting agencies. As long as this is the case and you make regular on-time payments, these credits can lead to credit score improvements.
Try to get a secured credit card. When they open a secured credit card account, they put down a deposit for the full amount of their spending limit – usually a few hundred dollars. When they use the card and make regular payments, the lender reports them to the national credit bureaus, where they are recorded in their credit files and reflected in their FICO® score. Timely payments and avoiding "maxing out" the card will encourage the improvement of their credit scores.
Pay your bills on time. There is no better way to improve your credit score.
Avoid high credit utilization rates. Try to keep your utilization on all your accounts below about 30% to avoid lowering your score.
Among consumers with FICO® credit scores of 505, the average utilization rate is 113.1%.
Try to build a solid credit mix. The FICO® credit scoring model tends to favor users with multiple credit accounts, and a mix of different types of loans, including installment loans such as mortgages or auto loans and revolving credit such as credit cards and some home equity loans.
Learn more about your credit score
Every growth process has to start somewhere, and a 505 FICO® score is a good starting point to improve your credit score. If you increase your score into the fair range (580-669), you can gain access to more credit options, lower interest rates, and reduced fees and terms. You can get rolling by getting your free credit report from experian and checking your credit score to find out specific problems that are keeping your score from rising. Read more about score ranges and what a good credit score is.