Is 517 a Good Credit Score? What It Means & How to Improve

A credit score is a numerical representation of an individual’s creditworthiness. It helps lenders quickly assess the risk associated with extending credit or loans. Understanding your credit score is a fundamental aspect of navigating the financial landscape, playing a substantial role in various financial decisions.

Credit Score Basics

A credit score is a three-digit number, typically ranging from 300 to 850, derived from information in a credit report. It helps financial institutions evaluate a borrower’s likelihood of repaying debts. The two primary credit scoring models are FICO Score and VantageScore. While both use similar data, their proprietary algorithms apply different calculations, resulting in slightly varying scores.

These models categorize scores into general ranges for quick risk assessment. FICO Scores include Exceptional (800-850), Very Good (740-799), Good (670-739), Fair (580-669), and Poor (300-579). VantageScore defines ranges such as Excellent (781-850), Good (661-780), Fair (601-660), Poor (500-600), and Very Poor (300-499). These categories help lenders classify borrowers and influence decisions on loan approvals, interest rates, and other credit terms.

Evaluating a 517 Credit Score

A credit score of 517 falls into the “Poor” or “Very Poor” category for both FICO and VantageScore. This signals to lenders that an individual is a high-risk borrower, suggesting a higher probability of defaulting on financial obligations.

Individuals with a 517 credit score face significant challenges obtaining new credit. Lenders often deny loans for products like mortgages, auto loans, and personal loans. When credit is extended, it comes with less favorable terms, including higher interest rates and fees, to compensate lenders for the elevated risk. This score can also hinder qualification for certain financial products requiring a stronger credit profile.

Key Elements of a Credit Score

A credit score is determined by several key categories of information within a credit report, each carrying a different weight.

Payment History

Payment history is the most impactful factor, reflecting an individual’s record of making payments on time. Consistent, on-time payments contribute positively to a score, while late payments, missed payments, or defaults can significantly reduce it.

Amounts Owed (Credit Utilization)

Amounts owed, also known as credit utilization, represents the percentage of available credit currently being used. A high credit utilization rate, such as exceeding 30% of available credit, can negatively affect a score.

Length of Credit History

This considers how long credit accounts have been open and their average age. A longer history of responsible credit management contributes to a higher score.

New Credit

New credit, including recent inquiries and newly opened accounts, can have a temporary negative impact. Opening multiple new accounts in a short period may signal increased risk to lenders.

Credit Mix

Credit mix refers to the variety of credit accounts an individual manages, such such as installment loans and revolving credit. Demonstrating responsible management of different types of credit can positively influence a score.

Strategies for Credit Score Improvement

Improving a credit score requires consistent financial management.

Make On-Time Payments

Make all payments on time and in full, as payment history is the most significant component of a credit score. Setting up automatic payments can help ensure that minimum amounts are never missed, establishing a positive payment pattern.

Reduce Credit Card Balances

Reducing credit card balances is an impactful strategy to lower credit utilization, which is the second most important factor. Aim to keep credit card balances well below 30% of the available credit limit, or even lower, to significantly improve a score. This can involve paying down existing debt or requesting credit limit increases without increasing spending.

Limit New Credit Applications

Avoid opening too many new credit accounts simultaneously. Each new application can result in a hard inquiry that temporarily lowers the score.

Check Credit Reports for Errors

Regularly check credit reports from Equifax, Experian, and TransUnion for errors. If errors are found, dispute them immediately with the credit bureau, providing supporting documentation.

Consider Secured Credit Cards

For individuals with limited or poor credit history, a secured credit card can be beneficial. These cards require a cash deposit as collateral, making them easier to obtain while allowing for credit building through responsible use.

Become an Authorized User

Becoming an authorized user on a trusted individual’s credit card account can also help. This is provided the primary account holder maintains excellent payment habits and low utilization, as their positive history may reflect on your report. However, ensure the issuer reports authorized user activity to the credit bureaus.

Real-World Implications of a Low Credit Score

A low credit score, such as 517, carries tangible consequences across various aspects of an individual’s financial life.

Loan Approvals and Interest Rates

Securing loans, including mortgages, auto loans, or personal loans, becomes significantly more challenging. This often results in outright denials or approvals with highly unfavorable terms. For instance, individuals with scores below 650 may face very high interest rates on auto loans, potentially exceeding 15% APR, compared to rates as low as 3% for those with excellent credit, leading to thousands of dollars in additional interest paid over the loan’s term. Mortgage rates also see a substantial increase for lower scores, with those below 620 typically facing the highest rates, while a score of 740 or higher generally secures the best terms.

Renting and Housing

Renting an apartment can become difficult, as many landlords conduct credit checks to assess a prospective tenant’s financial responsibility. Higher security deposits may be required, or applications could be denied altogether.

Insurance Premiums

Insurance premiums, particularly for auto and home policies, can also be higher for individuals with low credit scores, as insurers often correlate lower scores with a higher likelihood of filing claims.

Utility Services

Utility companies may also demand larger security deposits from customers with poor credit histories before establishing service.

Employment

In some employment background checks, especially for positions involving financial responsibilities, credit history may be reviewed, potentially influencing hiring decisions.