Is a 551 Credit Score Bad? What It Means & How to Improve
Decipher your low credit score's impact and find clear, actionable steps to improve your financial standing.
A credit score serves as a numerical representation of an individual’s creditworthiness. It plays a significant role in various financial aspects, influencing access to loans, credit cards, and even housing. Understanding this three-digit number is important for navigating financial decisions and opportunities.
Understanding Credit Score Ranges
A credit score is a three-digit number ranging from 300 to 850, calculated by models like FICO and VantageScore. While both FICO and VantageScore aim to predict credit risk, their exact methodologies differ.
Credit scores are categorized into ranges to indicate credit health. For FICO scores, a range of 800-850 is considered exceptional, 740-799 is very good, 670-739 is good, and 580-669 is fair. Scores below 580, including a 551, fall into the “poor” category, signaling a higher credit risk to lenders. VantageScore uses similar categories: 781-850 is excellent, 661-780 is good, 601-660 is fair, and scores below 600 are considered poor or very poor.
Implications of a 551 Credit Score
A credit score of 551 indicates a history of financial challenges, leading to practical consequences when seeking credit. Lenders view this score as a higher risk, which can result in difficulty securing various types of loans. For instance, obtaining approval for a mortgage, auto loan, or personal loan may be challenging. If approved, the interest rates offered will likely be significantly higher, increasing the total cost of borrowing.
Access to credit cards is also limited with a 551 score. Traditional unsecured credit cards are often unavailable, pushing individuals toward secured credit cards that require a cash deposit. Beyond lending, a low credit score can affect rental applications, with landlords potentially requiring larger security deposits or even denying applications due to perceived risk. Some insurance providers may also use credit-based insurance scores, which could lead to higher premiums for auto or home insurance. Additionally, utility companies might demand larger security deposits for services like electricity, gas, or internet.
Key Factors Influencing Your Credit Score
Your credit score is primarily determined by five major categories of information found in your credit report. Payment history is the most impactful factor, accounting for about 35% of your FICO Score. This category assesses whether you consistently pay your debts on time, with late payments having a significant negative effect.
The amount owed, also known as credit utilization, makes up about 30% of your score. This refers to the percentage of your available credit that you are currently using; keeping balances low, below 30% of your credit limit, is beneficial. The length of your credit history, accounting for around 15% of the score, considers how long your accounts have been open and active. A longer history of responsible credit use contributes positively to your score.
New credit, representing approximately 10% of your score, reflects recent credit applications and newly opened accounts. Multiple credit inquiries in a short period can temporarily lower your score. Finally, your credit mix, also about 10% of the score, evaluates the variety of credit types you manage, such as installment loans and revolving credit.
Steps to Improve Your Credit Score
Improving a 551 credit score requires consistent effort focused on the factors that influence it. Paying all bills on time is important, as payment history is the largest component of your score. Setting up automatic payments can help ensure that loan payments and credit card bills are never missed.
Reducing credit card balances is another effective step, as it lowers your credit utilization ratio. Aim to pay down revolving debt to keep your used credit well below 30% of your available limits. Regularly reviewing your credit reports from each of the three major bureaus (Equifax, Experian, and TransUnion) is also important to identify and dispute any inaccuracies. You can obtain free copies of your credit reports annually from AnnualCreditReport.com.
Limiting new credit applications can prevent multiple hard inquiries that could further impact your score. If you have a limited credit history or need to rebuild, consider a secured credit card, which requires a cash deposit as collateral, or a credit builder loan. With a credit builder loan, the funds are held by the lender while you make payments, and your on-time payments are reported to credit bureaus, helping to establish positive history. Be patient, as credit improvement is a gradual process that demands ongoing responsible financial behavior.