What Can I Do With a 640 Credit Score?

A credit score is a numerical representation of an individual’s creditworthiness, used by financial institutions to assess the likelihood of a borrower repaying debt. This three-digit number helps determine the amount of credit one can obtain and the associated interest rates.

The Significance of a 640 Credit Score

A 640 credit score falls within the “Fair” category across common credit scoring models. FICO scores classify 580 to 669 as Fair, while VantageScore models consider 601 to 660 as Fair. This classification indicates to lenders that a borrower may present a higher risk compared to those with higher scores. While a 640 score is below the national average FICO score (715 in 2023), it does not prevent access to credit. However, if approved, the terms of credit, such as interest rates, may be less favorable.

Credit Card Opportunities

Individuals with a 640 credit score have access to credit cards designed for those with fair credit. Secured credit cards are a common option, requiring a cash deposit that acts as the credit limit. For example, a $200 deposit might provide a $200 credit limit. This deposit serves as collateral, mitigating risk for the issuer and allowing individuals to build or rebuild their credit history.

These cards function like standard credit cards for purchases, with monthly statements and payment due dates. Many secured cards report payment activity to the major credit bureaus, which can help improve a credit score with responsible use. Credit cards available for a 640 score include higher interest rates (around 28% to 30% variable APR) and may involve annual fees. Some cards marketed for “fair credit” may also be available, but they come with less attractive terms than those offered to borrowers with higher scores. Initial credit limits on these cards are lower, reflecting the higher risk associated with a fair credit score.

Loan Availability

A 640 credit score impacts the availability and terms of various loan products. For auto loans, approval is possible, but interest rates will be higher than for borrowers with higher credit scores. The specific rate depends on the lender, vehicle, and other financial factors. Personal loans are accessible with a 640 score, though borrowers should anticipate higher interest rates, as lenders consider this score to indicate a higher-risk borrower.

For mortgages, a 640 credit score presents both challenges and opportunities. Conventional loans may be available, sometimes with a minimum credit score of 620, but a down payment of at least 3% is needed, and private mortgage insurance (PMI) is required if the down payment is less than 20%. Government-backed loans can be more accessible. FHA loans, insured by the Federal Housing Administration, are a common option for those with a 640 score. FHA loans require a minimum down payment of 3.5% for scores of 580 or higher and involve mortgage insurance premiums.

VA loans, for eligible veterans and service members, do not have a set minimum credit score, making them a viable option with no down payment or private mortgage insurance required. USDA loans, designed for eligible rural homebuyers, require a minimum credit score of 640 and offer competitive rates with no down payment, though they have income and property location restrictions. While a 640 score can secure a mortgage, it does not qualify borrowers for the lowest interest rates available, and stricter underwriting requirements may apply. For example, mortgage rates for a 640-659 credit score range could be around 7.711%.

Other Financial Access

A 640 credit score can influence various financial activities beyond traditional credit cards and loans. When renting an apartment, landlords review credit reports to assess a prospective tenant’s financial responsibility. A 640 score, being in the “Fair” range, might lead landlords to view an applicant as a moderate risk. Consequently, some landlords may require a higher security deposit or a co-signer to mitigate perceived risk.

Utility service providers, such as electricity, gas, and water companies, may also conduct credit checks when a new account is opened. A 640 credit score could result in a security deposit being required before service is established. These deposits can range from $100 to $250 or be up to two times the average monthly bill for the location. The deposit is held by the utility company and may be refunded after a period of timely payments (12 consecutive months).

Credit scores can also affect insurance premiums for certain types of coverage, including auto and home insurance. Insurance companies use credit-based insurance scores, which incorporate elements from credit reports, to predict the likelihood of future claims. A lower credit score may correlate with higher insurance rates, as statistical analysis suggests those with lower scores may pose a greater insurance risk.

Finally, some employers conduct credit background checks, particularly for positions involving financial responsibilities or access to sensitive information. While employers do not see the actual credit score, they can view a modified version of the credit report, showing payment history, debts, and bankruptcies. These checks are considered “soft inquiries” and do not impact the credit score.