500 Credit Score: What You Can and Can’t Get Approved

Ah, credit, where would we be without it? If you are reading this, we can presume that you have a credit score in the 500 range or are just curious about what options are available. In either case, you are in the right spot. Can you take out a mortgage with a credit score of 500? Can you get a car loan? Will you have a run-in with your telecommunications provider? Can you get a premium credit card?

One area where the law helps protect consumers is the requirement for credit reporting agencies to provide a fair and transparent dispute process. If you have a 500 score because of an error on your credit report, the agency must remove it within a specific period of time from the moment you notify them. This dispute process is for legitimate errors only. If your low score is due to your shopping habits, this article will give you a few tips to improve it.

Is it possible to get all the things you want with a 500 credit score?

Lenders consider people with a low credit score to be a higher risk, which can lead to stricter lending criteria, higher interest rates, or even a refusal. A low credit rating suggests a history of late payments, high indebtedness or default, making lenders cautious about granting loans.

With a credit score of 500, you would be able to get approved for some cell phones plans and maybe a free phone, but the phone would not be a flagship brand like the latest iPhone. You may also find it difficult to get a payment plan for your telecommunications equipment. The company will probably ask you to buy it up front.

Getting a car loan with a credit score of 500

You may be able to get a car loan, but it will be difficult to get a competitive interest rate. There are lenders who specialize in car loans to people with low credit scores.

For starters, you can forget about getting a loan from a dealership and a bank. Dealerships often work with a variety of lenders to offer financing to their customers, including the tempting option of zero-interest financing. However, a minimum credit score of 700 is generally required to access zero-rate financing. In addition, most banks and cooperatives require a minimum credit score of 660 for a car loan. Some may consider applicants with lower credit scores if they have someone to co-sign the loan. The guarantor becomes responsible for payments if you are unable to make them.

To get a car loan with poor credit, you are faced with two alternatives. Online lenders like Clutch tend to have more flexible credit score requirements, compared to traditional lenders. Some online lenders may accept applicants with credit scores of 550, but will likely charge higher interest rates to mitigate risk. There are also personal loans available to finance the purchase of a car in Canada. We’re talking about online lending platforms like goPeer and private lenders. Their tolerance to lower credit scores comes at a price, however. Their interest rates are generally higher, which can make some of these loans too burdensome for major purchases such as a car.

Getting a mortgage with a credit score of 500

In Canada, the minimum credit score required to get a mortgage varies according to the type of loan and the lender’s policy. However, most lenders generally prefer applicants with a credit score of 680 or more, or at least 600. Unfortunately, a score of 500 is likely to work against you. On the other hand, don’t hesitate to explore the tips for increasing your score by 100 points in just a few months!

You may want to consider a subprime mortgage. These are home loans granted to borrowers with low credit scores, usually in the 600s or below. These mortgages are designed to help people who may have difficulty qualifying for conventional loans because of their credit history or financial situation. However, they generally carry higher interest rates than conventional loans.

While subprime mortgages can offer homeownership opportunities to people who would otherwise struggle to get financing, it’s important for borrowers to carefully consider the terms and conditions. They need to be aware that higher interest rates can have a significant impact on the total cost of the mortgage, hence the need to weigh up the potential advantages and disadvantages before committing to such a loan.

What you can’t get approved for with a 500 credit score

We are going to touch on some of the things that you cannot get approved for right now, but remember your credit score can improve by taking some proactive steps which we will discuss a little later.

You will not be able to get credit cards from major banks; the credit score needed for a major bank credit card is 660 or over. Being able to rent an apartment, especially in larger metropolitan areas like the Toronto and Vancouver, will be difficult. The vacancy rate in these markets is low, and landlords will not feel comfortable renting to someone with a credit score in the 500 range. However, some owners don’t do credit checks, so if you find one, take it!

You will also have a difficult time being able to work with financial institutions or positions where you are in control of funds. An employer will do a soft credit check to see evaluate how you manage access to money. Your insurance company may also do a credit check and adjust your premiums accordingly.

When you sum up what you can do with a 500 credit score, there aren’t many options available to you. However, there are some things you can do to help turn things around. Remember: a credit score is not written in stone.

Turning your credit upside down

If we are being honest, you need to start taking proactive credit rebuilding steps. Your goal should be to get your credit score in the 600-680 range within the first year and build from there. While this may seem like an impossible goal, there are some things you can do to start raising your credit score today.

For instance, start by applying for secured credit cards. These secured cards are not prepaid cards you find in a store. When you sign up for secured cards like Neo or KOHO, they will report to TransUnion and Equifax. You need to use the cards but pay them in full every month. It will take a few months for these new accounts to start impacting your credit score, so now would be ideal to sign up for them.

There are also credit builder loans being offered, for example with Borrowell, which is something you should consider. When you sign up for these loans, you make a payment every month, and at the end of the loan, you will receive the payments you made less any fees.

Each month you make a payment, it will be reported to the credit bureaus. These positive reports will help increase your credit score. You cannot rush this process, but it will be worth it when your score starts to improve. If you have someone who has good credit and is willing to help, they could cosign a loan with your name on it. This gives you the ability to rebuild your credit, and thanks to the cosigner, you will be able to access more competitive financing terms.

Why do you need to take care of your finances?

Budgeting is an essential life skill that most of us lack. If you want to gain control of your finances, then you must create a budget; otherwise, it will be difficult for you to get control of your finances. There is no need to take special classes or learn any specific software. You can use an online calculator. Start by listing all of your income sources, and once you have that sum, you should list all of your debts and expenses.

While creating your budget, you can start coming up with a debt snowball plan to start paying down your debts. While you pay the minimum amount due on all of your debts, you can then allocate any spare money on the debt with the lowest balance until you pay it off. After you have paid off the first debt, using the same approach, move on to the next debt until that is paid off. This approach will take some time, but you are getting out of debt.

Staying on top of your credit

According to an Ipsos survey published in July 2023, a little more than half of all Canadians are close to being unable to pay their debts and 35% are actually unable to do so. So you are not the only one facing financial challenges, but you need to start getting yourself on a solid financial footing. You should check your credit score regularly to monitor your progress.

It is not difficult to check your credit score. You can get your credit score for free with companies like Borrowell and ClearScore. Borrowell gets your score from Equifax while ClearScore gets it from TransUnion. This way, you can keep track of your progress and stay motivated!

Having a 500 credit score doesn’t provide you with many good options, but you can turn things around. The sooner you begin following these tips, the sooner your credit score will increase. Your life (and your credit) is not over. You just have to work at it.