650 Credit Score

Fair 650 Credit Score

What Can I Do With A 650 Credit Score

There are many questions people often ask when they’ve learned that they have a 650 credit score. Is this a good or bad score? Can I qualify for a car loan, home loan, or credit card? What can I do to improve my credit score? A credit score of 650 is considered by most credit rating bureaus to be “Fair”. This score, in most cases would meet the minimum requirements for a conventional home loan, car loan, or credit card, however, there are some important factors to consider.

Credit History

Having a 650 credit score may mean that there are some blemishes in your recent credit history. Events such as missed payments, late payments, unpaid medical or utility bills, or charge-offs may impact your ability to qualify for a loan. Many lenders will also require any current outstanding debts on your credit report to  be paid off or paid up to date before they will extend credit to you, and they will often require a written letter of explanation detailing the reason the debt was unpaid.

Interest Rate

While a 650 credit score is sufficient in most cases to qualify for most conventional types of financing, it is at the low end of the minimum qualification. A 650 score is considered risky by most lenders, and therefore, these loans often carry higher rates of interest which could make your monthly home or car payment more expensive. When using a loan to purchase a big-ticket item such as a house or car, the increase in your monthly payment could be as much as hundreds of dollars per month.

Down Payment

Another way that lenders deal with the risk of lending to borrowers with a 650 credit score is to require a a larger down payment. This does 2 things to improve the bank’s chances of recovering their money. First, if you have made a significant investment in the home or car you are buying, you are much less likely to let the asset default. Second, when a bank defaults on an asset, they will generally sell the asset to recover as much of the loan as possible. If you have made a 20% down payment, there is a greater chance that the bank can recover most or all of its money from the sale of the asset.

Why Do I Have A 650 Credit Score

There are several common reasons that someone would have a 650 credit score, and some of them may surprise you. Most people understand that if you make your payments on time, your credit score will usually go up, and if you make payments late, or don’t pay a bill at all, that your credit score will go down. A mix of mostly on time payments with a one or two late payments could cause you to have  a 650 credit score, but usually there are other factors contributing to this type of score.

Length of Credit

A little known factor often used by the 3 major credit bureaus to calculate credit scores is the average length or age of your credit accounts. If you have had 1 credit card for 5 years, 3 credit cards for less than a year, and a car loan that is only a few months old, this could cause your score to be lower than if you had 4 credit cards for 4 years and a car loan that has been in good status for 2 years, even when all other factors are similar.

Mix of Credit

If you have several credit cards but no installment loans such as home loan, car loan, student loan, or other non-revolving loan, and you make all of your payments on time, you may still have a 650 credit score. This is because the credit bureaus use your credit type mix as a factor in calculating your credit score. It is generally considered good when there are a good mix of account types reporting good payment history.

Number of Accounts

It is very common for borrowers to try to keep things simple. While having only one credit card may be very simple to manage, it can have a negative effect on your credit score. Credit bureau ratings are meant to analyze your ability to manage and maintain your credit. As such, the bureaus will often rate those with few accounts lower than those with many since the borrowers with several accounts have demonstrated their ability to manage a more complex credit situation. Those with 20+ accounts reporting often tend to have the best credit scores.

Credit Usage

Credit usage can be a bit tricky, and is usually one of the least understood criteria by consumers. Many myths exist about how to use credit usage to improve your score, but none of them lead to better credit, and some can decrease your score and leave you buried under a mountain of debt and bills. Luckily, the truth about how to manage usage is far simpler than the myths most of us have heard. Simply using your credit cards on everyday purchases that you would make anyway (such as gas, groceries, etc), and paying off this small amount each month is usually the best way to manage credit cards. Making a substantial dent in any recent installment loans can improve your usage score as well.

Opening and Closing Accounts

Very often, people will close accounts that no longer suit them. For example, people who have been working diligently to build up their poor or non-existent credit, and now have better credit cards that have lower interest rates and no annual fees, will often call up and cancel their credit building credit cards. Closing accounts does have a temporary negative impact on your credit score. This is fine if you are not planning to use your credit for anything for a while, but if you do this within a few months to a year of getting a loan to buy a home or car, this will have a significant negative  impact on your score. The same type of impact is possible when you open several new accounts in a short period of time.

How Can I Improve My 650 Credit Score

There are several ways to improve your 650 credit score, many of which are mentioned above. Some strategies, such as paying any outstanding medical or utility bills or charge-offs, and paying down credit card debt, will often have a quick positive affect on your credit score. Depending on your current situation, you may be able to quickly make significant improvements in your credit score. Other strategies can take years, and can require careful planning and management such as opening a good mix accounts (installment and revolving), keeping everything in good standing, and seasoning these accounts for a few years.