500 Credit Score: Your Real Options, Safer Products, and the Lenders to Avoid

A 500 credit score means most mainstream lenders will turn you down or offer costly terms, but you aren’t out of options. On the FICO scale, anything below 580 is rated poor, a signal to lenders that you may be a risk [1], and VantageScore puts 500 in its subprime tier, where approval can be hard to get [2].

The products built for this situation are small and slow: secured cards, credit builder loans and credit union loans. The products that market hardest to people with a 500 score, like payday and “guaranteed approval” loans, are often the ones that cost the most. This guide sorts the two apart.

Why the score is low matters more than the number

A 500 usually comes from one or more of a short list: recent missed payments, accounts in collections or charged off, high balances, or a bankruptcy. Payment history is the single largest part of a FICO Score, at 35% [6].

Knowing which of these applies to you tells you what will help. Get your reports from all three bureaus for free at AnnualCreditReport.com, every week if you like [7]. Note each negative item, its date, and who reported it.

Products built for rebuilding

Secured credit cards

Many banks and credit unions offer secured cards. You put down a deposit equal to your credit limit, and the line usually starts small [8]. As you show you can pay on time, your limit may grow and you may get the deposit back [8]. The CFPB warns that fees and interest rates can be high, but that a secured card can help you establish a record [8]. Before you apply, ask whether the issuer reports to all three bureaus.

Credit builder loans

With a credit builder loan , the lender places the loan amount in a locked savings account, you make monthly payments, and the payments are reported to the bureaus [9]. They usually run from $300 to $1,000 [9]. In the CFPB’s research, people with no existing debt benefited more than people already carrying loans [9]. More in Credit Builder Loans: How They Work, What They Cost, and Who Offers Them.

Credit union payday alternative loans

If you need cash for an emergency, many federal credit unions offer payday alternative loans (PALs). They range from $200 to $1,000, run one to six months, and the application fee can’t be more than $20 [4]. You generally need to be a member for at least one month, a credit union can make no more than three PALs to one borrower in six months, and a PAL can’t be rolled over [4]. MyCreditUnion.gov gives the example of a PAL at a 28% APR [4].

Community development lenders

CDFIs are lenders certified by the U.S. Treasury’s CDFI Fund with a primary mission of serving low-income communities. They include credit unions, banks and loan funds [10]. The CDFI Fund publishes a list of certified CDFIs you can sort by location [10].

Mortgages at 500

Buying a home is harder at this level, but FHA-insured loans are not closed to you. FHA rules allow a minimum decision credit score as low as 500; between 500 and 579, the loan is limited to 90% of the home’s value, so you need at least 10% down [3]. Below 500, the loan isn’t eligible for FHA insurance [3]. Individual lenders often set higher minimums of their own.

Lenders and offers to avoid

Payday loans are easy to get with a 500 score, which is exactly why they’re risky. Besides the cost, the CFPB notes that even paying a payday loan on time might not help your credit [8].

Watch for two more traps:

• Advance-fee loans. Ads saying you can get credit regardless of your history, or a lender that wants a fee before it releases your loan, are FTC warning signs of a scam [11].
• “Buy here, pay here” car lots. The CFPB says these loans won’t help your credit unless the dealer promises in writing to report your on-time payments [8].

Clearing errors and old items

Some of what’s dragging a 500 down may not belong on your report. If you find something inaccurate, dispute it with the bureau and with the company that furnished it, in writing, with copies of your proof [12]. The bureau must investigate free of charge, usually within 30 days [13]. If a dispute goes nowhere, file a complaint with the CFPB [12].

Also check dates. Negative items don’t stay on your report forever, and the timing rules are in How Long Negative Items Stay on Your Credit Report: The 7- and 10-Year Rules.

If a lender reported a late payment correctly but you had a one-time hardship, a short goodwill letter asking it to reconsider is worth a try. The lender has no obligation to change it.

How a credit repair company can help

At a 500 score, there’s often more than one negative item on more than one report, and sorting through them takes time. A credit repair company can take that work off your plate. It pulls and reviews all three of your reports, spots items that may be inaccurate, incomplete, outdated or unverifiable, and files and tracks disputes with each bureau and with the creditors and collectors that reported them. It follows up on the investigation deadlines, keeps records, and keeps going round after round, while you focus on the on-time payments and low balances that build your score.

Credit repair works on items that are wrong or can’t be verified; accurate, current information can’t be removed by anyone [14]. You can file disputes yourself; a company handles the work and the follow-up for you.

Federal law protects you when you hire one. Under the Credit Repair Organizations Act, the company can’t charge you until it has performed the services it promised [15], must give you a written contract spelling out the services, total cost and timeline [16], and must let you cancel within three business days without penalty [17]. If you have several items you believe are wrong, a reputable credit repair company is worth considering.