What Can I Get With a 520 Credit Score?

A 520 credit score is generally categorized as “very poor” or “subprime”. This score indicates to lenders a higher risk of financial obligations not being met. Approximately 16% of consumers have FICO Scores in this “very poor” range. This article provides insights into accessible financial products and guidance on improving your credit.

Understanding Your Options for Credit

Navigating financial products with a 520 credit score presents certain limitations, yet some options remain available.

Secured Credit Cards

Secured credit cards are often the most accessible product for individuals seeking to build or rebuild credit. These cards require a cash deposit, typically ranging from $50 to $500, which serves as collateral and usually becomes the credit limit. The primary purpose of a secured card is to establish a positive payment history, as activity is reported to the major credit bureaus.

Personal Loans

For those needing a personal loan, options are often limited to specific online lenders or credit unions. These loans come with significantly higher interest rates and less favorable terms. Carefully review all terms and avoid predatory lenders offering excessively high annual percentage rates (APRs) or unfavorable repayment structures.

Auto Loans

Securing an auto loan is possible, but borrowers with a 520 credit score will likely qualify for “subprime” auto loans. These loans are characterized by very high interest rates, often in the double digits, and may require a larger down payment to mitigate the lender’s risk. For instance, the average APR for borrowers with a 520 credit score on an auto loan can be around 13.00%, in contrast to about 5.08% for those with higher scores. A co-signer may also be required to increase the likelihood of approval and potentially secure better terms.

Rental Housing

When applying for rental housing, landlords often view a 520 credit score as a sign of financial risk. To offset this, they may require a larger security deposit, potentially two or three months’ rent, or request a co-signer who has a stronger financial profile. Demonstrating a stable income and a history of on-time rental payments, if applicable, can also help to strengthen a rental application.

Utility Services

Utility service providers, such as electric, gas, and water companies, may also assess creditworthiness before initiating service. A low credit score like 520 can lead to a requirement for a security deposit before service is connected. This deposit helps the utility company cover potential losses if bills are not paid, and it is usually refundable after a period of consistent on-time payments.

Implications for Major Financial Aspirations

A 520 credit score significantly impacts the ability to pursue major financial goals, as it signals a higher risk to potential lenders.

Mortgages

Obtaining a traditional mortgage is highly unlikely with a score in this range. While some costly alternative financing might exist, they are generally not viable for most individuals seeking homeownership.

Unsecured Loans and Lines of Credit

Securing large, unsecured personal loans or lines of credit at reasonable terms is nearly impossible with a 520 credit score. Lenders typically reserve these products for borrowers with established credit histories and higher scores, reflecting a lower perceived risk of default. Any unsecured credit that might be available would come with extremely high interest rates and restrictive repayment conditions.

Insurance Premiums

Beyond lending, a low credit score can affect other aspects of personal finance, such as insurance premiums. In many states, auto and home insurance providers use credit-based insurance scores to determine policy rates. A 520 credit score may result in higher premiums for these essential coverages, increasing overall living expenses.

Employment

While less common than for financial roles, some employers conduct credit checks as part of their background screening process. This is particularly true for positions that involve handling money, sensitive information, or significant financial responsibility. A low credit score could potentially influence an employer’s decision, especially if the role requires a high degree of financial trustworthiness.

Strategies for Improving Your Credit Score

Improving a 520 credit score requires a focused and consistent effort, beginning with understanding your current credit standing.

Credit Reports

Regularly obtaining free credit reports from the three major credit bureaus—Equifax, Experian, and TransUnion—is a foundational step. Reviewing these reports allows you to identify any inaccuracies or errors, which can then be disputed with the respective credit bureau to potentially remove items that are negatively impacting your score.

Payment History

Payment history carries the most weight in credit score calculations. Making all payments on time, every time, for all accounts—including credit cards, loans, and even utility bills—is the most impactful action you can take to raise your score. Setting up payment reminders or automatic payments can help ensure that due dates are never missed.

Credit Utilization

Credit utilization, which is the amount of credit you are using compared to your total available credit, is another significant factor. Keeping your credit utilization ratio low, ideally below 30% on revolving accounts, demonstrates responsible credit management. This means if you have a credit card with a $1,000 limit, strive to keep your balance below $300.

Credit Mix and Length

Having a mix of different types of credit, such as revolving accounts and installment loans, can positively influence your score. Acquire new credit judiciously, as opening too many new accounts can temporarily lower your score. The length of your credit history also contributes to your score; older accounts are generally more beneficial. Keep older accounts open, even if paid off, to maintain a longer average credit age.

Making Informed Financial Decisions

Beyond directly improving your credit score, making informed financial decisions is paramount for long-term financial health, especially when starting with a 520 credit score.

Budgeting

Developing and adhering to a realistic budget is a foundational practice. A budget helps you track income and expenses, ensuring that you can meet your financial obligations and make timely payments, which directly supports credit improvement efforts.

Emergency Fund

Building a small emergency fund is another protective measure. Having readily available savings can prevent reliance on high-interest credit products when unexpected expenses arise, thus avoiding further debt accumulation and potential negative impacts on your credit score. Aim to save at least a few hundred dollars to cover minor emergencies.

Avoid High-Cost Products

It is particularly important to avoid high-cost credit products such as payday loans, auto title loans, and some cash advances. These types of loans often carry extremely high interest rates and fees, which can quickly lead to a cycle of debt that is difficult to escape. Understanding the true cost of borrowing before committing to any loan is essential to prevent further financial strain.

Credit Counseling

For personalized guidance and structured support, consider seeking assistance from a non-profit credit counseling agency. These agencies offer services such as budgeting advice, debt management plans, and financial education. They can provide a tailored approach to managing your finances and working towards a stronger credit profile.