Is a 520 Credit Score Bad? Steps to Improve Your Score

A credit score provides a snapshot of your financial reliability, indicating to lenders how likely you are to repay borrowed money. This three-digit number, typically ranging from 300 to 850, summarizes information in your credit reports. A 520 credit score falls into the “Poor” category, signaling high risk to potential lenders and suggesting significant challenges when seeking financial products.

Understanding Credit Score Ranges

Credit scoring models like FICO and VantageScore categorize scores into ranges to assess creditworthiness. Both models use a scale from 300 to 850. FICO Scores classify anything below 580 as “Poor,” with “Fair” scores between 580 and 669. VantageScore models define “Poor” for scores from 300 to 599, and “Fair” between 600 and 660. A 520 credit score is firmly positioned at the lower end of this spectrum, indicating substantial risk from a lender’s perspective. These ranges guide financial institutions in evaluating loan applicants.

What a 520 Score Means for Your Finances

A 520 credit score significantly impacts your ability to access financial products and services, often leading to higher costs and limited options. Securing loans like mortgages or auto loans becomes particularly challenging, as lenders view a low score as an indicator of increased risk.

Even if approved for a loan, a 520 credit score almost guarantees significantly higher interest rates. This can add thousands of dollars to the total cost of a mortgage or auto loan over its lifetime, directly translating to higher monthly payments and straining personal budgets.

Access to traditional credit cards is also severely limited. Secured credit cards or subprime options become the primary alternatives. Secured cards require a cash deposit as the credit limit, while subprime cards often come with high annual fees and unfavorable terms.

Beyond loans and credit cards, a low credit score can affect other aspects of daily financial life. Landlords frequently check credit scores, and a 520 score may result in denial or a larger security deposit. Utility companies might also demand higher deposits for new service. Some insurance providers use credit-based scores to determine premiums, potentially leading to higher costs for auto or homeowner’s insurance.

How Credit Scores are Determined

Credit scores are calculations based on several factors within your credit report, with different weights assigned to each. Payment history is the most influential factor, accounting for approximately 35% of a FICO Score and around 40% for VantageScore. This assesses whether you have consistently made payments on time across all your credit accounts. A history of missed or late payments can significantly lower your score.

The amount of debt you owe, often referred to as credit utilization, is another substantial factor, typically making up 30% of a FICO Score and 20% of a VantageScore. This measures the percentage of your available credit that you are currently using; keeping balances low relative to your credit limits is beneficial. The length of your credit history, which includes the age of your oldest account and the average age of all accounts, also plays a role, contributing about 15% to a FICO Score and 20% to a VantageScore. A longer history of responsible credit management is viewed favorably.

New credit, representing recent credit applications and newly opened accounts, accounts for about 10% of a FICO Score and 5-11% for VantageScore. While opening new accounts can temporarily lower your score due to hard inquiries, it can also improve your credit mix over time. The final component is your credit mix, which considers the different types of credit you manage, such as installment loans (e.g., auto loans, mortgages) and revolving credit (e.g., credit cards). This factor typically makes up about 10% of a FICO Score.

Steps to Improve Your Credit Score

Improving a 520 credit score requires consistent, disciplined financial habits. The most impactful step is to consistently pay all bills on time, as payment history carries the most weight. Setting up payment reminders or automatic payments can help ensure loan installments, credit card bills, and utility payments are never missed.

Reducing your credit utilization is another crucial action. Keep credit card balances low relative to your credit limits, ideally below 30% of available credit. Paying down existing balances or increasing credit limits without increasing spending can positively impact this ratio. Regularly check your credit reports for errors and dispute any inaccuracies, as mistakes can unfairly depress your score. You can obtain a free copy annually from each major credit bureau.

While improving your score, avoid applying for new credit unnecessarily, as each application results in a hard inquiry that can temporarily lower your score. Instead, consider credit-building tools like secured credit cards or credit-builder loans. Secured cards require a refundable deposit and report payment activity, establishing positive history. Credit-builder loans involve regular payments into a savings account, building both savings and credit history.

Becoming an authorized user on a trusted individual’s credit card account can also help, provided they maintain excellent credit. Monitor your credit score regularly through free services to track progress and identify issues.