Is 562 a Good Credit Score? What It Means & How to Improve

A credit score is a numerical representation of an individual’s creditworthiness, typically a three-digit number. Lenders use it to assess the risk of lending money and how likely a person is to repay borrowed funds. While various scoring models exist, such as FICO and VantageScore, they generally range from 300 to 850. These scores determine access to financial products like mortgages, auto loans, and credit cards.

Understanding Credit Score Ranges

Credit scores are organized into distinct ranges that categorize a borrower’s credit risk. For FICO scores, which are widely used, these ranges are:
Poor or Very Poor: 300 to 579
Fair: 580 to 669
Good: 670 to 739
Very Good: 740 to 799
Exceptional: 800 to 850

A 562 credit score falls within the “Poor” or “Very Poor” range. This score is significantly below the average U.S. FICO score of 715 in 2023, indicating higher credit risk to lenders.

Key Factors in Credit Score Calculation

Several components contribute to the calculation of a credit score, each carrying different weight.

Payment History

This is the most significant factor, accounting for approximately 35% of a FICO score. It reflects whether bills are paid on time. Consistent on-time payments positively influence the score, while missed or late payments negatively affect it and remain on a credit report for up to seven years.

Amounts Owed (Credit Utilization)

This factor makes up about 30% of a FICO score. It measures the amount of credit used relative to the total available credit. Maintaining a low credit utilization ratio, generally below 30%, is beneficial for a credit score.

Length of Credit History

This plays a role, typically accounting for 15% of a FICO score. A longer history of responsible credit management indicates greater stability to lenders.

Credit Mix

Having a variety of account types, like installment loans and revolving credit, contributes approximately 10% to a FICO score. Demonstrating the ability to manage different forms of credit can be advantageous.

New Credit

Recent applications and newly opened accounts impact about 10% of a FICO score. Each application for new credit usually results in a “hard inquiry,” which can temporarily lower a score by a few points.

Navigating Financial Products with a 562 Score

Accessing various financial products with a 562 credit score often presents challenges. For credit cards, individuals with this score are unlikely to be approved for traditional unsecured cards. If approved, options may be limited to secured credit cards, which require an upfront cash deposit, or cards with high interest rates and fees.

Obtaining loans, such as personal, auto, or mortgage loans, can also be difficult. Lenders view a 562 score as indicating higher risk, leading to potential denials or significantly less favorable terms. Interest rates will likely be substantially higher, increasing the overall cost of borrowing. In some cases, a larger down payment or the requirement for a co-signer might be necessary for approval.

Beyond traditional lending, a lower credit score can influence other areas of financial life. Landlords may review credit scores when evaluating rental applications, and a 562 score could lead to requests for larger security deposits or even rejection in competitive markets. Utility companies may also require security deposits before establishing service.

Actionable Steps to Enhance Your Credit Score

Improving a 562 credit score involves consistent and strategic financial habits.

Pay Bills On Time

Ensure all bills are paid on time, every time. Setting up payment reminders or automatic payments can help maintain a consistent record, as positive payment history is a significant factor in credit score calculation.

Reduce Credit Utilization

Reduce credit card balances and lower credit utilization. Aim to keep the amount of credit used below 30% of the total available credit. Paying down revolving debt can lead to a noticeable improvement in scores over time.

Review Credit Reports

Regularly review credit reports for accuracy. Consumers are entitled to a free copy of their credit report annually from each of the three major credit bureaus. If errors are identified, dispute them promptly with the credit reporting company and the information provider.

Limit New Credit Applications

Avoid opening too many new credit accounts in a short period. While individual inquiries have a small impact, numerous inquiries can signal higher risk to lenders. Becoming an authorized user on an account with a positive payment history and low utilization can also benefit a score, provided the primary account holder manages it responsibly.

Use Secured Credit Cards or Credit-Builder Loans

For those with limited credit history or a low score, secured credit cards or credit-builder loans can establish positive credit. Secured credit cards require a cash deposit, which sets the credit limit. Responsible use and on-time payments are reported to credit bureaus, helping to build history. Credit-builder loans involve making regular payments into a savings account, with funds released once the loan term is complete, demonstrating payment reliability.