On the FICO scale, which goes from 300 to 850, a 575 credit score is “Very Poor.” This is the lowest rating for creditworthiness, and it leaves you with very few options.
Many lenders will avoid doing business with borrowers with a Very Poor credit scores. Some may still grant you a loan, but they are likely to charge exorbitant interest rates.
If you are not sure where your credit score stands, you can order a free annual credit report to get a summary of what lenders see when you apply for a credit card or loan.
Though a 575 credit score can be problematic, there are steps you can take to improve your creditworthiness.
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Why Your Credit Score Is 575
There are many possible reasons why your credit score is 575. Everyone’s situation is unique, and there are usually multiple factors at play. However, there are a few common factors that play the biggest role in your credit history.
A Poor Public Record
If your public record includes a bankruptcy, lien, or some other kind of judgment on your property, your credit score is likely to suffer. If there is a judgment on your property, your best option is to clear it as soon as possible.
Even then, bankruptcy doesn’t come off your record the minute all your debts get settled. A Chapter 7 bankruptcy will live on your records for up to 10 years, and a Chapter 13 bankruptcy will be there for seven.
This is not to say that you can’t improve your credit score sooner, though there may still be lenders who won’t grant you money until the bankruptcy has left your records entirely and you have a good credit score.
Delinquencies and Defaults
People with Fair or Very Poor credit scores often have a history of missed payments. Late or missed payments can severely impact your credit score. Considering the fact that your payment history accounts for up to 35% of your FICO score, it is in your best interest to clear all missed payments and commit to paying on time in the future.
This is especially true if any of your accounts have moved to collections. In that case, settling the debt will not immediately get the overdue debt removed from your report. After you pay the debt, send a goodwill letter to the credit bureaus; if they agree to remove the collections account from your credit report, it will improve your score.
Your Credit Utilization Ratio
Your credit utilization ratio is the outstanding balance on your credit cards expressed as a percentage of your total credit limits.
If, for example, your total credit limit across all your cards is $10,000 and your outstanding balance (the amount you owe) is $4,500, your credit utilization rate is 45%.
Many experts agree that you should keep your credit utilization rate under 30% to improve your credit score.
The Length of Your Credit History
The longer your credit history, the higher your credit score is likely to be if you account for all other factors. If you’re a newcomer and just starting to build your score, the best you can do here is maintain good credit habits and wait.
Your credit score may be in the Very Poor range, but it will go up over time. If you have any old credit cards, do not close them, as this will reduce your credit history and lower your score.
Your Recent Credit Activity
Every time you apply for a new credit card or loan, you trigger a “hard inquiry,” where the lender requests your score, and possibly your credit report, from each reporting agency.
This can impact your scores in the short term, though they will rebound in a few months if you keep making payments on time. A low credit score could be due to an excessive number of applications in a short period.
What Can You Do With a 575 Credit Score?
You have limited options with a 575 credit score. You are unlikely to get approved for any traditional loans or credit cards. Instead, your best bet is to get bad credit loans, (which are personal loans with high interest rates) a secured credit card, or a credit builder loan.
A secured credit card is a good option because they have a very high approval rate, even for individuals with bad credit. Usually, you have to deposit a few hundred dollars, and you cannot spend more than the deposited amount. Your usage will then be reported to the credit bureaus, improving your scores over time.
You will not qualify for standard credit cards or rewards credit cards with a score of 575.
It would be best if you also considered getting a credit builder loan from a credit union. Some credit unions don’t even issue the loan as cash but instead place it in a savings account to accumulate interest.
Once you pay the loan off, you can have the money and the interest it has accrued. Again, all your payments are reported to credit bureaus so that regular payments will improve your score quickly.
How to Improve a 575 Credit Score
You can take several different steps to increase your credit score.
Consider Getting a Secured Credit Card
Secured credit cards have very high approval rates, even for people with bad credit, since you need to make a security deposit and not spend more than that initial collateral.
If you make small purchases and pay off the balance quickly, your score will rise because the credit card company will report this positive activity to the credit bureaus.
Settle Outstanding Judgments
If there are any liens or judgments on your record, settle them as soon as possible and pay them off.
Unfortunately, bankruptcies will mar your credit history for a long time. In this case, focus on developing good credit habits while waiting for the bankruptcy to leave your record.
The good news is that your score can still improve, even if the default is on your public record.
Make Payments On Time
Avoid having any delinquent accounts in your name. If any of your accounts have moved to collections, pay them off as soon as possible. Also, make at least minimum payments on all accounts on or before the due date to ensure you don’t have any more late payments on your record.
Keep Your Credit Utilization Low
Keep your credit utilization below 30% on all your credit cards. Once you hit this percentage, you should see substantial improvements to your score.
Consider Hiring a Credit Repair Company
While you may embark on the journey of repairing your credit alone, you don’t have to. A credit repair company can do most of the legwork for you. They’re able to negotiate with your creditors, dispute inaccuracies on your reports, and craft a debt management plan for you.
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