Bad Credit? This is How You Can Fix Your 500 Credit Score
20% of Americans have more credit card debt than they have in emergency savings.
When your debt isn't properly managed, it makes it hard for you to get a loan. But a 500 credit score can impact more than just borrowing money. And it's not something that can be repaired overnight.
If you've got bad credit, and a 500 credit score is bad, you shouldn't wait to fix it. Improving your credit is a long-term process. That's why you need to learn how to fix your credit now, so you're in a good position when you need to be.
Why Fix Your Credit?
There are a number of practical reasons that you want good credit:
- If you have a credit score of 500, you're likely being charged a higher interest rate by insurance companies
- Utility companies check your credit score before deciding whether you need to pay a security deposit for their services
- Banks check your credit before they decide to give you a loan or a new credit card
- You get better terms when you have good credit and borrow money
Having good credit can help you when you need to borrow money to buy a home, a car, or another big-ticket item. It can help you get a new credit card or make purchases related to growing your business.
Step 1: Look at Your Credit Report
How do you get a credit report? The 3 main credit bureaus in the US are legally required to give you a free credit report annually. These bureaus are TransUnion, Equifax, and Experian.
You can also use a free service to get a copy of your credit report. Additionally, you're entitled to a free report under the following circumstances:
- If you've been denied credit as a result of a credit check
- If you're the recipient of government assistance
- If you're unemployed but looking for a job
- If you've been the victim of credit card fraud
- If you've been the victim of identity theft
In some states, you're entitled to a free credit report more than once per year. Check the laws where you live to see if you qualify.
You may consider ordering credit reports from all 3 bureaus as well as a free service. Why? Because credit bureaus don't share information.
That means that your credit report may be different across all your reports. If you're trying to fix your credit, you want to know about everything having to do with your credit. You may find something on one report that wasn't listed on another that could greatly affect your score.
So why go through the trouble of getting your credit report? They contain the history of each of your accounts. They also tell you what's listed in the public record and reveal what's causing your bad credit.
Getting a credit report is the first step in knowing what your credit score is. It gives you an idea of where you are and where you need to get.
Because it lists any mistakes you've made with your credit, also gives you an opportunity to fix those mistakes. We'll talk more about this below.
How to Fix Your Credit
Below we've detailed the many steps you can take to start fixing your 500 credit score. Take the time to complete each of these. They could significantly improve your credit in the short-term.
Dispute Information on Your Credit Report
Under the Fair Credit Accounting Act, you have the legal right to dispute the information on your credit report. You can dispute information that's inaccurate, incomplete, or that can't be verified for accuracy.
You can dispute these mistakes online, by phone, or by mail. You can dispute them through the free service you used to get your credit report. Or, you can dispute them with the credit bureaus.
While disputing errors on the internet or by phone will save you time and effort, it doesn't give you any proof of your dispute. Instead, consider making your disputes via mail.
Sending in disputes via mail allows you to send proof and evidence that your dispute is legitimate. You can also ask for a return receipt. The credit bureaus have 30-45 days to look into your dispute so a return receipt gives you proof of the date you started the dispute.
Dispute Derogatory Marks
Derogatory marks are related to collection accounts as well as judgments. They may be reported in error. These have a significant impact on your credit score so you should dispute anything you believe is an error.
Late-payments make up 35% of your credit score. The best credit report will have all of your accounts marked as "current". At the very least, you want past due accounts marked as "paid".
It's not uncommon to have late payments on your report that weren't actually late. Whether you mortgage lender or credit card company marked a payment as late incorrectly, you should dispute it. You can do this for current accounts as well as close accounts.
Dispute Accurate Information
You can also try disputing accurate information. You only do this in cases where you don't think the information can or will be verified.
When you file a dispute, the credit bureau looks into the situation. They'll ask the creditor to provide verification that the information is correct. If the creditor doesn't verify, the information is removed.
Often, small collection agencies won't provide verification. But banks, credit card companies, finance companies, and mortgage lenders generally do provide verification when disputed.
Send Disputes with the Right Information
When mailing your disputes to the credit bureau, you should include the right information to back up your dispute. This will give the credit bureau a good reason to investigate your claim. Without any proof, they may decline to investigate or update your credit report.
Enclose a copy of your credit report that highlights what you're disputing. Include any proof or evidence that you have.
You can also make disputes directly to the creditor. They're legally obligated to investigate your disputes. They can remove inaccurate or unverifiable information for your credit report.
Follow-Up On Disputes
If the credit bureau investigation finds that your dispute is correct, they'll update your report. They'll also have your report updated with the other bureau's and send you a new report.
However, if your dispute isn't successful, this will reflect on your credit report. You'll be given the chance to add a personal statement that gives insight into the nature of the dispute. While it won't affect your credit score, it does give you a chance to explain your side.
And in the case that your dispute is unsuccessful, don't give up just yet. Try calling the creditor, explaining that you're trying to fix your credit and that you'd appreciate their help. Sometimes, just asking nicely can help your credit.
Increase Your Credit Limit Where Possible
Credit card utilization is how much credit you're using in comparison to how much total credit you have. This accounts for 30% of your credit score. Using over 50% of your total credit will lead to bad credit.
If paying down your balances isn't an option, there's another way to decrease your utilization. That's through increasing your credit limits. With more credit made available to you, your utilization automatically goes down.
In order to do this, check if you're eligible for a credit limit increase. You can call your credit card company and ask them if they'd increase your limit as well. Most of the time, they'll want to give you more money.
The important thing with this step is not to use that new credit to make purchases. Using this credit will just increase your utilization again and put you even deeper in debt.
Open Another Credit Account
If you can get a new credit card, that gives you more credit. Which means your utilization goes down.
Again, don't use the new credit card.
Start Making Larger Payments
When you have extra money to make payments with, start paying down your credit. Consider going on a budget and using the extra money to make larger payments. This will lower your credit utilization.
To make the most of your payments, you'll want to pay off high-interest accounts first. These cost you more money in the long term and should be your first priority. You can then prioritize these by age, which matters to your credit report.
Never Get Rid of Old Credit Cards
The other item that has a big impact on your credit score is the age of your credit history. The longer you've had an account, the better it looks for you. That's why you should never close old credit card accounts.
If you have to get rid of an account, close newer ones before older ones.
Don't Make Late Payments
As we already mentioned, late payments have a negative effect on your credit score. Even just one late payment can cause your credit score to go down.
Always pay your bills on time.
Need Help With Your Credit?
Fixing your 500 credit score is a long-term process. If you have bad credit, you should learn how to fix your credit before you need access to a loan, mortgage, or new credit card.
Disputing errors can have a significant impact on your score. You may also consider options to decrease your credit utilization. But if you have bad credit and you need money now, check out our blog for helpful tips and advice.