Is a 656 Credit Score Good? What It Means for You

A credit score is a numerical representation of an individual’s creditworthiness, indicating the likelihood of repaying borrowed funds. This three-digit number, typically ranging from 300 to 850, plays a substantial role in personal finance by influencing access to various financial products and the terms associated with them. A 656 credit score falls into a specific category within these ranges, which impacts financial opportunities.

Understanding Credit Score Ranges

Credit scores are generated by models such as FICO and VantageScore, both typically using a scale from 300 to 850. While exact categorization varies slightly between models, general ranges are consistent across the industry. For FICO Scores, a range of 580 to 669 is considered “Fair,” while “Good” credit begins at 670. VantageScore 3.0 classifies scores between 601 and 660 as “Fair,” with “Good” credit starting at 661. Therefore, a 656 credit score typically falls into the “Fair” category for both models.

Implications of a 656 Credit Score

A 656 credit score, in the “Fair” range, means credit approval is often possible, but terms may not be the most advantageous. Lenders view this score as carrying moderate risk, leading to higher borrowing costs.

For credit cards, individuals with a 656 score might receive interest rates around 16.5% to 20.5%, compared to 13.5% for those with excellent credit. Approval is generally attainable, though often with lower credit limits and potential annual fees.

When seeking an auto loan, borrowers might encounter interest rates from 4.68% to 11.92% for new cars. This is significantly higher than rates for borrowers with stronger credit, who might secure rates around 5.25% for new vehicles. While obtaining a car loan is likely, increased interest translates to higher overall payments.

For mortgages, a 656 FICO score could see average interest rates between 3.317% and 4.293% on a $300,000 loan, whereas an exceptional score could yield rates around 2.704%. Government-backed loans, such as FHA, VA, or USDA loans, might be more accessible for scores in this range.

Factors Influencing Your Credit Score

Several key components contribute to a credit score, reflecting an individual’s credit management habits. Payment history is the most impactful factor, typically accounting for 35% to 40% of a FICO or VantageScore. Consistent on-time payments demonstrate reliability, while even a single payment delayed by 30 days or more can negatively affect scores.

Credit utilization, which is the amount of credit used compared to the total available credit, is another significant component, influencing 20% to 30% of a score. Keeping this ratio below 30% is generally recommended, as higher utilization can signal increased risk to lenders.

The length of credit history, encompassing the age of accounts and the average age of all accounts, accounts for approximately 15% of a FICO Score. A longer history of responsible credit use is generally viewed favorably.

The types of credit used, or credit mix, contributes around 10% of the score, showing the ability to manage various credit products like installment loans and revolving credit. Demonstrating the ability to manage different forms of credit responsibly can positively impact your score.

New credit inquiries, which occur when applying for new credit, make up about 10% of the score. While a single inquiry typically has a minor and temporary effect, numerous inquiries in a short period can suggest higher risk.

Strategies for Credit Score Improvement

Improving a 656 credit score involves consistent financial discipline focused on the key factors influencing scores. Making all payments on time is the most effective step, as payment history carries the most weight in credit score calculations. Setting up automatic payments or payment reminders can help ensure bills are never missed.

Reducing credit card balances to lower credit utilization is another impactful strategy, aiming to keep the ratio below 30% of available credit. Paying down revolving debt and avoiding maxing out credit limits can quickly positively affect scores.

Avoiding opening too many new credit accounts simultaneously helps preserve the length of credit history and limits the number of hard inquiries. Each new credit application can result in a hard inquiry, which may slightly reduce the score for a period.

Regularly checking credit reports for errors and disputing any inaccuracies can also prevent incorrect information from negatively affecting the score. This proactive review can identify potential issues that hinder credit improvement.