A credit score stuck at 500 immensely limits access to credit and raises borrowing costs. Many individual borrowers continue to remain unaware of the common mistakes and errors holding their scores down.
Understanding these mistakes is essential, especially as lenders require higher credit scores, often over 725, for disbursements of unsecured loans or credit cards. A credit score, hence, is a three-digit number that gives a borrower their borrowing integrity. The higher the score, the better it is. To boost scores, therefore, borrowers must avoid making the same mistakes.
Purvang Mashru, Senior Quantitative Research Analyst at 1 Finance, says, “Being stuck at 500 isn’t fate, it’s usually the same missteps on repeat. Late EMIs, swiping cards to the limit, or applying for fresh credit to fix old mistakes only push the score further down. Minimum due isn’t really ‘on time’, and high usage isn’t smart leverage. The fix is simple but steady – pay full amount consistently, keep balances low, and go slow on new credit.”
5 habits that keep you rooted at a 500 credit score
1. Late or missed payments damage credit: One of the most detrimental factors damaging credit scores is consistent late or missed EMIs and credit card bill payments. Payment history accounts for about 35% of the credit score calculation of an individual borrower. That is why even a single late payment can bring down the score by 50 points. Furthermore, repeated delays and stalling of payments can cause much greater drops. Such behaviour signals credit hunger and a higher risk of default to lending institutions.
2. Excessive credit utilisation signals risk: Using a high percentage of available credit, especially in extreme cases of over 80% utilisation, clearly indicates over-reliance on borrowed funds. Professionals recommend keeping credit utilisation below 30-40% to maintain a healthy credit score. A higher utilisation, even with on-time and consistent repayments, can damage creditworthiness because it showcases financial strain.
3. Multiple recent credit inquiries: Applying for several personal loans, credit cards, or home loans within a short period of time is also not advised. Such actions can result in several hard inquiries within a short duration of time. These inquiries, when looked at holistically, can reflect credit-hunger and can even bring down credit scores temporarily. That is why it is advised to space out credit applications to overcome unnecessary inquiries and background checks.
4. Errors in credit reports: There are instances when credit reports contain inaccuracies and mistakes. For example, wrong loan statuses or payment errors, incorrect personal information, along other similar issues can bring the credit score down unfairly. That is why, to combat the same, borrowers must regularly check their credit reports for mistakes and discrepancies and promptly dispute errors to prevent unwarranted damage.
5. Limited or inconsistent credit history: If you have a short or patchy credit history, then it can hinder your borrowing potential and score improvement. A longer credit history with diverse credit types, such as both unsecured and secured loans, signals reliability. Closing out older accounts or maintaining only one credit type may stall progress, as lenders want to check how comfortable an individual is while servicing several different credit lines and loans before providing them with new loans.
By inculcating these healthy practices well well-aware borrowers can look to improve their credit scores from 500 in a gradual manner. It is important to keep in mind that improvement of credit scores is a slow process, and it takes considerable time and continuous effort.
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