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

A credit score provides a numerical snapshot of an individual’s creditworthiness, indicating repayment likelihood. Lenders use this number to assess credit risk for financial products. It summarizes one’s credit history from credit reports. A credit score plays a significant role in personal finance by influencing access to credit and the terms offered.

Understanding a 517 Credit Score

Credit scores typically range from 300 to 850. A 517 credit score falls into the “Very Poor” or “Bad” category across major scoring models like FICO and VantageScore. FICO scores categorize anything below 580 as “Poor,” while VantageScore 3.0 considers scores between 300 and 499 as “Very Poor” and 500-600 as “Poor.”

This classification indicates to lenders that a borrower with a 517 score presents a high risk of defaulting on financial obligations. Lenders perceive such a score as a sign of past difficulties in managing debt. Consequently, securing new credit becomes challenging, and any approved loans or credit lines often come with unfavorable terms.

Implications of a Low Credit Score

A low credit score, such as 517, presents substantial financial hurdles. Obtaining new lines of credit becomes difficult, as lenders view individuals with poor scores as high-risk borrowers. This can affect applications for common financial products like mortgages, auto loans, personal loans, and even credit cards.

When credit is approved despite a low score, it comes with significantly higher interest rates. Lenders impose these higher rates to compensate for the increased risk they undertake, meaning borrowers pay considerably more over the life of the loan. This translates to higher monthly payments and a greater overall cost for financing.

Credit options are also limited for those with low scores. Fewer lenders may offer credit, and available products often have restrictive terms, smaller credit limits, or require collateral. This reduces financial flexibility. Individuals might find themselves unable to secure financing for significant life purchases, such as a home or a vehicle, or even basic credit cards.

A low credit score can impact other areas of daily life:

• Landlords may check credit reports when processing rental applications, potentially leading to denial or requiring larger security deposits.
• Insurance providers might also use credit information to determine premiums, often resulting in higher costs for individuals with lower scores.
• Utility companies can require substantial deposits before activating services.
• Some employers, particularly for positions involving financial responsibility, may conduct background checks that include credit reports.

Common Reasons for a Low Credit Score

A primary factor contributing to a low credit score is a history of missed or late payments. Payment history holds the most weight in credit scoring models. A single payment missed by 30 days or more can significantly reduce a score, and these negative marks can remain on a credit report for up to seven years.

High credit utilization is another significant contributor, which is the amount of revolving credit currently in use compared to the total available credit. This factor is highly influential for credit scores. Lenders generally prefer a credit utilization ratio below 30%, as exceeding this threshold can signal financial strain and a higher risk of default. For example, if you have a total credit limit of $10,000 and carry a balance of $5,000, your utilization is 50%, which is considered high.

The length of credit history also plays a role. A shorter credit history or a lower average age of open accounts can result in a lower score because it provides less data for lenders to assess long-term financial behavior. Conversely, a longer history of responsible credit use can positively impact a score.

The mix of credit accounts, such as having both revolving credit (like credit cards) and installment loans (like mortgages or auto loans), influences a score. A lack of diverse credit types can indicate limited experience managing different forms of debt. Applying for too much new credit in a short period can negatively impact a score. Each application results in a “hard inquiry” on a credit report, which can temporarily lower a score, particularly if multiple inquiries occur within a short timeframe.

Public records, such as bankruptcies, foreclosures, or collections, severely impact credit scores. Bankruptcies can remain on a credit report for seven to ten years, and collections for seven years from the original delinquency date. Bankruptcies continue to significantly lower scores.

Steps to Improve Your Credit Score

Improving a 517 credit score requires consistent effort and strategic financial management. The most impactful step is making all payments on time, every time. Payment history is the largest factor in credit scoring, so establishing a record of timely payments is important. Setting up automatic payments or reminders can help ensure bills are never missed.

Reducing credit card balances is another effective strategy. This lowers your credit utilization ratio, which is the second most important factor in credit scoring. Aim to keep your total credit card balances below 30% of your available credit limits, and ideally even lower, as this signals responsible credit management to lenders. Paying down high-interest debt first can accelerate this process.

Regularly reviewing your credit report for errors is also important. The Fair Credit Reporting Act (FCRA) allows consumers to obtain a free copy of their credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) annually. Carefully examine these reports for any inaccuracies, such as accounts that are not yours or incorrect payment statuses.

If you discover errors, dispute them directly with the credit bureau and the information provider. Correcting these errors can potentially boost your score. Providing documentation to support your dispute is required.

Limiting new credit applications can help prevent further score drops from hard inquiries. A single hard inquiry has a small, temporary impact, but multiple applications in a short period can be viewed as risky behavior by lenders. It is advisable to only apply for credit when truly necessary.

Becoming an authorized user on another person’s credit card account can potentially help, provided the primary account holder has a strong payment history and low credit utilization. If the account is managed responsibly, the positive payment history can reflect on your credit report, helping to build your own history. However, if the primary user mismanages the account, it could negatively affect your score as well.

For individuals with limited or poor credit history, a secured credit card can be an excellent rebuilding tool. These cards require a cash deposit that acts as your credit limit, reducing risk for the issuer. Consistent, on-time payments on a secured card are reported to credit bureaus, helping to build a positive payment history over time.

Exploring debt management strategies can provide a structured approach to improving your financial situation. Options might include creating a detailed budget, prioritizing debts based on interest rates (like the “debt avalanche” method), or considering debt consolidation loans to simplify payments. Working with creditors to negotiate repayment terms or seeking guidance from a credit counseling agency can also be beneficial in managing debt with a low credit score.