Is a 650 Credit Score Bad? How It Affects Your Finances
Demystify your 650 credit score: understand its financial implications and the core components that build your credit profile.
A credit score is a numerical representation that helps lenders assess an individual’s creditworthiness, indicating how likely a person is to repay borrowed money. Scores are calculated based on information within credit reports. The two most recognized credit scoring models in the United States are FICO and VantageScore.
Credit Score Classifications
Credit scores typically range from 300 to 850, with higher scores indicating lower credit risk. FICO categorizes scores into distinct ranges: “Poor” (below 580), “Fair” (580-669), “Good” (670-739), “Very Good” (740-799), and “Exceptional” (800-850).
The VantageScore model also uses a 300 to 850 range, though its categories differ slightly. Under VantageScore, “Poor” or “Very Poor” are below 601, “Fair” is 601-660, “Good” is 661-780, and “Excellent” is above 780. A 650 credit score generally falls within the “Fair” category for both FICO and VantageScore, placing it on the lower side of what many lenders consider “Good” credit.
How a 650 Score Affects Borrowing
A 650 credit score can influence the terms and approvals for various financial products. While it may not prevent access to credit entirely, it often results in less favorable conditions compared to those with higher scores. This can translate to higher interest rates and potentially lower loan amounts across different types of borrowing.
For personal loans, a 650 credit score may allow for approval, but the interest rates are likely to be higher than those offered to individuals with stronger credit profiles. For instance, average personal loan rates for credit scores in the 630-689 range were around 17.93%, with some fair credit rates reaching 30.04%. Similarly, obtaining an auto loan with a 650 score is generally possible, though borrowers are typically classified as “near prime” or “nonprime”. Average interest rates for new car loans for this score range were around 9.83% and 13.74% for used cars, which are significantly higher than rates for those with excellent credit.
Securing a mortgage with a 650 credit score is feasible, particularly through government-backed options such as FHA, VA, or USDA loans, which often have more flexible credit requirements. While conventional loans might also be available, they may come with stricter terms. Mortgage lenders often view a 650 score as sufficient for approval, but the interest rates offered will generally be higher; for example, average APRs for a 30-year fixed $200,000 mortgage for scores between 640 and 659 were approximately 7.506%.
Credit card options for someone with a 650 credit score are available, but they may include secured cards that require an upfront cash deposit, or unsecured cards with lower credit limits and higher annual percentage rates (APRs). Beyond traditional lending, a 650 score also impacts other financial services. Landlords frequently consider this score acceptable for rental applications, although some may request a higher security deposit or require a co-signer due to the perceived risk. Furthermore, insurance providers often use credit-based insurance scores, which means a 650 credit score can lead to higher premiums for auto and other types of insurance, as it may suggest a higher likelihood of filing claims.
Elements That Determine a Credit Score
Credit scores are derived from several key components within a credit report, each carrying a different weight. While both FICO and VantageScore models consider similar factors, their precise weighting can vary.
Payment history is consistently the most influential factor for both models, accounting for approximately 35% of a FICO Score and 40% to 41% of a VantageScore. This component reflects an individual’s track record of making payments on time. Late payments, collections, or bankruptcy filings can significantly reduce a score.
Amounts owed, also known as credit utilization, represents another substantial portion of a credit score, making up about 30% of a FICO Score and 20% of a VantageScore. This factor measures the proportion of available credit currently being used. Maintaining a low credit utilization ratio, ideally below 30%, is generally viewed favorably.
The length of credit history contributes approximately 15% to a FICO Score and between 20% to 21% to a VantageScore. This includes the age of the oldest account, the newest account, and the average age of all accounts. A longer credit history with responsible management tends to have a positive influence.
New credit, including recent applications and newly opened accounts, impacts about 10% of a FICO Score and 5% to 11% of a VantageScore. Opening multiple new credit accounts in a short timeframe can indicate increased risk and may temporarily lower a score. The credit mix, representing the variety of credit accounts such as installment loans and revolving credit, makes up about 10% of a FICO Score. A diverse mix of credit types can demonstrate an ability to manage different forms of debt responsibly.