With a credit score of 500 or below, when related to the FICO model, the majority of lenders will consider the applicant too high a risk to offer credit. A credit score of 500 from any of the major bureaus is considered a very risky proposition and well below the average of 720.
The person in question has likely been in financial difficulty in the past and been unable to make repayments on credit cards or loans as well as other credit negatives such as using too much credit. Such scenarios as bankruptcy and deeds in lieu of foreclosure are further reasons why a credit score may be below the 500 range.
Even though credit may be harder to come by at this level, the arrival of what’s known as ‘Subprime’ lenders means that literally any person with any credit score is able to get credit in some shape or form. Though this sounds like good news on the surface, it can be very costly. The cost of credit depends how far down the scale a person is from the 500 level. A person with a credit score of 500 will receive better lending conditions to that of a person with a 350 score, however interest rates, fees, charges and other terms set out by the lender will not be favourable to either.
Subprime credit can also have an adverse affect on a person’s credit. By simply being accepted for Subprime credit, that fact is recorded with credit bureaus and it results in a negative entry on the person’s credit report. Because of this the credit score is lowered further which means even worse lending offers in the future.
The lower the credit rating an individual has, the longer it will take to repair that rating and reach a more respected level. However, good money management and credit habits will result in the gradual return of a good credit score.
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