A bad credit rating can be damaging – and demoralizing – especially when applying for a mortgage or a new car loan. FICO credit scores range from 300 to 850 – and the higher the score, the lower the risk associated with lending money or credit. Events such as missed payments, foreclosure, and bankruptcy all lead to a bad credit score. A FICO score or other credit score of 500 or less is considered very bad. The good news is, whatever the reason for your low count, there are things you can do now to increase your credit score.

Last updated: November 20, 2020

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10 things to do to increase your 500 credit score

Negative credit ratings can last up to a decade depending on the severity, so taking action to immediately raise your credit score is essential. Click to discover 10 easy ways to improve your credit score.

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1. Make your payments on time

Your payment history is the first indicator that lenders look at before approving credit. Setting up automatic payments can help eliminate the need to remember which bills to pay when, making it more difficult to miss a payment.

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2. Keep your credit utilization rate low

When rebuilding credit, a key number is your credit utilization rate, which is the total of your credit card balances divided by your total credit limit. Having a usage rate of less than 30 percent makes you more attractive to lenders, which indicates that you are not maximizing credit cards.

Ways to lower your usage rate include paying off existing debt and maintaining a low credit card balance, as well as carrying a responsible user’s credit account.

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3. Pay off existing debt

It might sound obvious, but reducing your current debt load can increase your credit score by 500. Focus on paying the highest interest credit cards first.

Check the interest rate of each card on your credit report. Once these cards are redeemed, the unused credit decreases your usage rate.

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4. Avoid using your cards with a balance of 0

Another component of the credit score is the number of accounts opened and their balances. If possible, stop using your cards for purchases, especially those with zero balances.

As a general rule, accounts with zero balances tend to improve your credit rating. But refraining from using your credit cards will also help you pay off your debt faster.

Read more: What is the highest credit score?

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5. Create a budget

While budgeting may not be the most attractive step in improving credit score, it is an effective piece of the credit rebuilding puzzle. Budgeting will bring up what you can and can’t afford, preventing – or at least signaling – potential financial excess. You can use useful budgeting apps like Wally, Mint, and Goodbudget to make your job easier.

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6. Don’t open unnecessary credit cards

Each time you apply for a new line of credit, the request appears on your credit report. Using the credit you have previously earned shows your commitment to responsible credit management, which can increase your credit score. Plus, having too many credit cards can lead to over-indebtedness.

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7. Diversify your debt

Credit scoring models take into account all types of credit cards and loans. If your debt is from the same source of credit – for example, if all of your credit is from department stores – it can negatively impact your credit card score.

Aim for a good mix of credit, which can include credit cards, retail accounts, installment loans, finance company accounts, and mortgages.

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8. Protect yourself against identity theft

Fraud can cause irreparable damage to your credit score if it is not dealt with immediately. Typically, the identity thief will make maximum use of credit cards in your name – and these fees never get paid. A range of identity protection agencies can monitor your spending and alert you to risks. It can also be useful to keep an eye on your credit report, as new accounts opened in your name will appear there.

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9. Get a secure credit card

One way to reshape your credit history is to use a secured credit card. Secured credit cards require a security deposit, which reduces the risk of missed payments as the deposit should, in most cases, cover them. The deposit also serves as a credit limit.

Secured credit cards allow you the flexibility of an unsecured card with the assurance of a security deposit. With good behavior, it is possible to switch to an unsecured card because you have regained the trust of the lenders.

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10. Dispute any errors on your credit report

It is possible to find errors on your credit report, and if you do, report them immediately. Under the Federal Fair Credit Reporting Act, you have the right to challenge any information that you believe is false.

“Inaccurate, incomplete or unverifiable information should be removed or corrected, usually within 30 days,” according to the FCRA. Be aware that you must make your point by writing a formal letter.

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