A FICO credit score of 550 is in the “Very Poor” range (on the scale of 300 to 850). Though you won’t be able to apply for rewards credit cards or get approval for most loans or mortgages, you can take steps to repair your credit.
You are just 30 points away from a “Fair” credit score (580 to 669) and 120 points away from a “Good” credit score (670 to 739). A higher score will give you access to better interest rates and loans.
If you are unsure of your FICO score, you can get an annual credit report for free to see where you stand.
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Why Your Credit Score Is 550
While every situation is unique, there are some common reasons why an individual’s credit score could dip to 550.
You May Have Defaulted or Missed Payments on Loans
Delinquency (not making a loan payment on time) or default (falling behind payments by 90 days or more) can significantly impact your credit score.
Though delinquency is a serious issue, it is one of the simpler ones to remedy. Simply making the required payments and striking the late payments from your record can boost your score by 50 points or more.
If you have any delinquent accounts, make the missed payments as soon as you can. Default is more difficult to deal with, and will have a greater impact on your credit score.
If you are in default, the amount owed will depend on your state’s statute of limitations, as well as whether your account has been referred to a collections agency.
You Have Declared Bankruptcy
There is no other financial event that can impact your credit score as negatively as a bankruptcy. You could lose 200-plus points, bringing a good credit score plummeting from the 700s to the 500s.
It may also take up to 10 years to recover from this event. While there is not much you can do about the effect of bankruptcy on your credit score, you can speed up the recovery process by signing up for a secured credit card, making purchases with it, and paying the bills on time.
Secured credit cards have a high approval rate, as they are backed by a deposit equal to the spending limit. They also report your account information to all the credit bureaus monthly. You may also hire a credit repair service to report your rent and utility payments to the credit bureaus to boost your score.
Your Went Through Foreclosure or Repossession
Another common reason for a very low credit score is going through a home foreclosure or having property repossessed to cover your debts.
The problem with repossessions and foreclosures is that they are rarely isolated events. They usually come in the wake of delinquent or defaulted loan payments, and they are often administered by collections agencies to recover unpaid balances.
Your best bet is to build your credit score back up by making payments on time on any current lines of credit. You should also consider hiring a debt settlement and credit repair agency to help you negotiate better terms with the collections agency.
This step can help you retain any remaining property and avoid the adverse effects of repossession or foreclosure.
What Can You Do With a 550 Credit Score?
The short answer to the question of what you can do with a 550 credit score is “not much.” You can get a secured credit card, which is typically available to individuals with even the lowest credit scores.
However, a Very Poor score (of 579 or below) will exclude you from most loans and perks that come with credit cards, such as rewards and cash-back programs.
Your borrowing will be limited to high-interest personal loans, which may push you further into debt. Some employers, landlords, and utility providers also check an individual’s credit score before doing business with them. You may find it challenging to get internet or phone connections or rent a place to live with a poor credit score.
If your score has dipped to 550, your main focus should be to improve your credit score. As your score rises, you will be presented with opportunities to access low-interest loans, get better credit card terms, and sign up for services and utilities with greater ease.
How to Repair a 550 Credit Score
Repairing a 550 credit score will take time, and it will require discipline. It is, however, possible, provided you take the fundamental steps necessary to raise your score.
- Don’t miss payments:Delinquencies are one of the chief causes of failing credit scores.
- To avoid dropping your number further, pay all of your bills on time.
- This step includes paying all previously missed payments and settling accounts that are in collections.
- Lower your credit utilization ratio:Your credit utilization is your unpaid balance as a percentage of your spending limit.
- When your unpaid balance is high in relation to your credit limit, you have a more significant financial commitment, which increases your risk of delinquency or default.
- Ideally, you want to get your utilization ratio to 30% or less for each card.
- Don’t create any more debt: Any other credit repair efforts will be unsuccessful if you do not stop creating additional debts.
- You do need to use a credit card to increase your score, but you should only make small purchases that you can pay off immediately.
- You should not attempt to charge larger purchases that you cannot repay within a month.
- Apply for a secured credit card:A secured credit card is your best bet for building your credit back up.
- These credit cards have very high approval rates, as a security deposit is required before you can use the account.
- The security deposit is the same amount as the spending limit of the card, which is usually just a few hundred dollars.
- Secured cards report your account activity to credit bureaus every month, so making timely payments and keeping your utilization rate low will ensure your credit score edges up consistently.
- Consider hiring a credit repair company:You can try to repair your credit score on your own. However, a credit repair company will make the process significantly easier, for a fee.
- Such companies will help you choose the best secured credit cards for your situation, advise you on how to manage your debt, and even negotiate with collections agencies on your behalf.
These steps will help you achieve a higher credit score so you can enjoy access to loans, lower interest rates, and credit card rewards.
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