Think of your credit score as a report card summarizing your credit history and showing lenders how well you handle debt. It’s a three-digit number that’s calculated based on your credit record. Thus, establishing good financial habits as soon as you get your first credit card or loan is crucial because this can significantly affect your credit score.
A 650 credit score is not considered “bad,” according to FICO (the Fair Isaac Corporation), which is a widely used standard for credit scores. FICO credit scores range from 300 to 850, with 850 being the highest. A score of 650 falls in the “Fair” rating, which means it’s not great, but it’s not too bad either. This article will explain how a 650 credit score can impact your financial life.
| FICO Credit Score Ranges | Rating |
| Below 580 | Poor |
| 580 to 699 | Fair |
| 670 to 739 | Good |
| 740 to 799 | Very Good |
| 800 and up | Exceptional |
How Good is a 650 Credit Score?
In 2023, the average credit score in the U.S. was 718, making 650 a below-average score. It may indicate a mix of positive and negative elements, leaving room for improvement but not signaling a financial crisis. While some lenders might see this as a yellow caution light, others may view it as an opportunity for growth. Interest rates might not be at rock-bottom levels, but doors to credit and loans are still open, albeit with certain terms and conditions.
Let’s break down what a 650 credit score might mean for your wallet and financial prospects.
Car Loan Rates
Dreaming of a new car? While there is no strict minimum credit score for car loans, a 650 credit score may limit your options. You’ll likely encounter higher interest rates and less favorable terms, requiring careful consideration before committing to a loan. Here are some tips for securing a car loan with a fair credit score:
- Make a bigger down payment: Opting for a larger down payment on your car purchase can be a strategic move, especially if faced with high-interest-rate loan options. A bigger initial payment reduces the amount you need to borrow, potentially leading to lower overall expenses throughout the loan’s duration and a chance for a better interest rate.
- Have a cosigner: If possible, have a trusted friend or family member co-sign the loan. While this has pros and cons, it could enhance your eligibility for a more favorable loan.
- Review and compare your options: When looking for a car loan, it’s a good idea to check the rates and terms from different lenders–including banks, credit unions, or online lenders–as they may offer better rates than the dealership. Comparing options won’t necessarily harm your credit score. According to FICO, Insurance Scores count multiple hard inquiries from lenders in any 30-day period as just one inquiry. Therefore, you can shop around for rates within 30 days without worrying about it affecting your credit score.
Mortgage Rates
Securing a mortgage with a 650 credit score is feasible but may present more challenges. Expect less favorable terms and higher interest rates than those with better credit. However, various mortgage options are available, and some are tailored for those who may not qualify for a conventional loan. These loans, provided by private lenders but backed by the government, might let you make a smaller down payment than a conventional loan.
Popular government-backed loans include Federal Housing Administration (FHA) loans, The Department of Veterans Affairs (VA) loans, and The U.S. Department of Agriculture (USDA) loans. While these options may be more accessible than conventional loans, they’re not a one-size-fits-all solution. If you have fair credit and are eyeing a conventional loan, qualifying might be tricky without facing high interest rates and fees. Thoroughly exploring loan options and improving your credit before committing could save you money in the long run.
Credit Cards
Individuals with a 650 credit score can get unsecured credit cards. While no security deposit is required, expect annual fees and a modest credit limit. Also, these cards often have a high variable annual percentage rate (APR) on purchases, meaning hefty interest charges if you don’t pay off your balance at the end of each month.
With fair credit, you might initially secure a credit card with a relatively low credit limit. However, some issuers may review and potentially raise your limit after a few months of consistent on-time payments. Remember, your credit limit matters because it directly affects your credit utilization rate – an important factor in your overall credit score.
Cash back and travel rewards credit cards might be a stretch with a 650 credit score, as these premium perks typically favor those with higher credit scores. But don’t be discouraged–even if your credit card isn’t the best, it can still contribute to building your credit. Credit cards report your account activity to the major credit bureaus, impacting your credit history and scores. Consistent on-time payments and active efforts to boost your credit pave the way for qualifying for more attractive credit card options down the line.
To help you get started, the best credit card for a 650 credit score is the Citi Double Cash Card. With a $0 annual fee and a generous 2% cash back on purchases, it offers tangible benefits and reports to major credit bureaus monthly. This helps build your credit history if used responsibly. Cushion.ai can also help you build your credit profile while managing expenses to avoid overspending and late payments. Sign up and stay on top of your finances today.
Personal Loans
Like mortgage and car loans, personal loans are accessible with a 650 credit score but may come with higher interest rates and additional fees. These elevated rates and fees could make the loan less appealing, especially if they are not low enough to save you money in the long run.
It’s also crucial to weigh the urgency of your financial needs against the potential long-term costs associated with a personal loan. If waiting is an option and you have the time to improve your credit, you might qualify for a loan with a more favorable interest rate. Taking the time to build your credit could save you money in the future.
Alternative: “Buy Now, Pay Later”
With a 650 credit score, your biggest hindrance in securing a loan is the high-interest rates. Zero-interest loans are available but often require a credit score of at least 740.
Fortunately, “Buy Now, Pay Later” (BNPL) loans are accessible to almost everyone, regardless of their credit history and score. However, using these loans responsibly is essential to avoid overextending yourself financially. According to the Consumer Financial Protection Bureau, BNPL lenders may charge late fees, often around $7 to $8 per missed payment. With the right knowledge, avoiding impulse purchases, and careful management of payments, BNPL can be a valuable tool for increasing your investments and potentially escaping debt.
To help you keep track of your BNPL payments, consider using Cushion.ai. Our app allows you to manage and pay your BNPL payments in one place and can even help you build your credit history with the payments you make.
How to Improve Your 650 Credit Score.
Though you’ve landed a 650 credit score, the journey doesn’t end there. You can take actionable steps to elevate your credit score over time. Here are a few tips to help you enhance your creditworthiness and increase your credit score:
- Make timely payments: The backbone of a solid credit score lies in your payment history. Consistently pay your bills on time, as missed or late payments can have a detrimental impact.
- Reduce credit card balances: Aim to decrease outstanding balances on your credit cards. Lowering your credit usage rate (the amount of credit you use compared to your total credit limit) can positively influence your score. Financial experts recommend keeping your credit usage rate below 30%.
- Diversify your credit mix: Lenders appreciate a mix of different types of credit, such as credit cards, installment loans, and retail accounts. While opening new credit accounts unnecessarily is not advisable, having a balanced mix can benefit your score.
- Review your credit report: Regularly check your credit report for errors or inaccuracies that might be dragging your score down. Dispute any discrepancies you find to ensure your credit report accurately reflects your financial history.
- Negotiate with creditors: If you’re facing financial challenges, don’t hesitate to contact your creditors. Some may be willing to work with you on revised payment plans or settlements to help you stay on track.
- Avoid opening multiple accounts at once: While diversifying your credit mix is beneficial, opening multiple accounts within a short time frame can be risky. Space out new credit applications to avoid potential negative impacts.
- Use credit responsibly: Demonstrate responsible credit behavior by using credit judiciously. Avoid maxing out credit cards, and only apply for new credit when necessary.
- Be patient: Building or improving credit takes time. Patience is key, and consistent positive financial habits will gradually contribute to a stronger credit profile.
You can boost your credit score by incorporating these strategies into your financial habits. Building good credit is a journey, not a quick fix, so stay committed. As you work towards this goal, consider trying out Cushion – a useful tool enabling you to manage your credit and build it up through BNPL payments.
Frequently Asked Questions (FAQs)
Is 650 a good credit score to buy a car?
A 650 credit score is considered fair, but whether it’s a good credit score to buy a car depends on the lender’s requirements. Some lenders may approve a car loan with a 650 credit score, but you may not get the best interest rates and terms. It’s always wise to shop around and compare offers from different lenders to find the best deal.
How much of a home loan can I get with a 650 credit score?
While a 650 credit score is not terrible, it may limit your options regarding home loans. The exact amount you can get with a 650 credit score will depend on various factors, such as your income, debt-to-income ratio, and down payment amount. It’s best to speak with a lender to get an accurate estimate of how much you can borrow.
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Summary
According to FICO standards, a credit score of 650 falls under the “Fair” category. While it is not outstanding, it isn’t entirely bad either. Whether you’re considering loans, mortgages, or credit cards, having a 650 credit score means you may encounter less favorable terms or increased interest rates than individuals with higher credit scores. We recommend carefully evaluating your options before committing to a loan and improving your credit score to secure more advantageous terms in the future.
