Is a 632 Credit Score Good? What It Means & How to Improve
A 632 credit score: Learn its real significance, how it affects your financial life, and effective ways to build a stronger credit profile.
Credit scores summarize an individual’s creditworthiness, helping lenders assess risk and influencing access to financial products. The most recognized models, FICO and VantageScore, use a scale from 300 to 850.
Credit Score Categories
The FICO scoring model, for instance, categorizes scores as Poor (300-579), Fair (580-669), Good (670-739), Very Good (740-799), and Exceptional (800-850). VantageScore also uses a 300-850 range, with categories such as Very Poor (300-499), Poor (500-600), Fair (601-660), Good (661-780), and Excellent (781-850).
A 632 credit score falls into the “Fair” category for both major scoring models. While this score indicates a moderate level of risk to lenders, it is not considered “Good,” as the “Good” range begins at 661 for VantageScore and 670 for FICO. It signals room for improvement and may present some limitations in financial opportunities.
Implications of a 632 Score
A 632 credit score means an individual may qualify for financial products but will likely encounter less favorable terms. Lenders often view scores in this range as representing a higher risk, leading to higher interest rates and potentially lower credit limits on credit cards and loans. For example, auto loan interest rates for borrowers with a 632 score can be significantly higher than those for individuals with better credit, potentially more than 1.5% higher than for top-tier applicants.
Securing a mortgage with a 632 score is possible, as conventional loans require a minimum score of 620, but the interest rates will be less competitive. Borrowers with a 632 score might expect interest rates that are notably higher compared to those with excellent credit, potentially adding hundreds of dollars to monthly payments over the loan’s duration. Personal loan options may also come with high interest rates and additional fees, such as origination fees, making them less appealing.
Beyond traditional lending, a 632 credit score can influence other aspects of personal finance. Rental applications may face scrutiny, and landlords might require larger security deposits. Insurance providers often use credit scores to set premiums, which could result in higher costs for individuals with a 632 score. Utility companies may also request deposits for service based on creditworthiness.
Improving Your Credit Score
Improving a 632 credit score involves focusing on the factors that influence credit scoring models, with payment history being the most significant. Consistently making all payments on time is crucial, as even a single late payment can negatively affect a score. Setting up automatic payments or payment reminders can help ensure timely remittances, which directly contributes to a stronger payment history.
Managing credit utilization, the amount of credit used relative to the total available credit, is another important factor. It is advised to keep credit card balances below 30% of the available credit limit to demonstrate responsible credit management. Strategies to lower utilization include paying down existing balances, making multiple payments throughout the billing cycle, or requesting a credit limit increase.
The length of credit history also plays a role, with older accounts contributing positively to a score. Keeping older accounts open, even if rarely used, can help maintain a longer average age of accounts.
A diverse credit mix, encompassing both revolving credit (like credit cards) and installment loans (such as auto loans or mortgages), can also be beneficial. Demonstrating the ability to manage different types of credit responsibly can show lenders a broader range of financial acumen. However, it is not advisable to open new accounts solely for the purpose of diversifying credit, as new credit applications can temporarily lower a score.
Applying for new credit results in a “hard inquiry” on a credit report, causing a small, temporary dip in the score. While new accounts can eventually contribute positively by increasing available credit and diversifying the mix, caution is advised against opening too many accounts in a short period. Focusing on responsible use of existing credit and incremental improvements over time yields the best results.