What Is a 640 Credit Score and Is It Good?

A credit score is a numerical representation of an individual’s creditworthiness, serving as a snapshot of their financial reliability. These three-digit numbers are widely used by lenders to assess the risk associated with extending credit. A higher score generally indicates a lower risk, potentially leading to more favorable borrowing terms. Understanding how these scores are calculated and what they signify is an important aspect of personal financial management.

Interpreting a 640 Credit Score

A 640 credit score typically falls into the “Fair” category across common credit scoring models. FICO categorizes 580 to 669 as “Fair,” while VantageScore 3.0 places scores between 600 and 660 in its “Fair” tier. This classification indicates a moderate level of credit risk, distinguishing it from “Good” or “Excellent” scores.

The average FICO score in the United States is around 717, placing a 640 score below the national average. Lenders perceive a 640 score as indicative of some credit risk, suggesting a borrower had past payment issues or a shorter credit history. While not considered “poor,” a 640 score signals to lenders that credit access may be possible, but with less advantageous terms. Some lenders may decline applications, while others specializing in “subprime” lending may approve them with higher interest rates and fees.

Implications for Borrowing and Lending

A 640 credit score has tangible implications for various financial products, affecting both eligibility and the cost of borrowing. While it may not prevent access to credit entirely, borrowers often encounter less favorable terms compared to those with higher scores. This score often places applicants in a category where lenders perceive a higher degree of risk.

For mortgages, a 640 FICO score is considered fair and can still allow access to certain loan types, particularly government-backed options such as FHA and VA loans. Conventional loans may also be accessible, though lenders might impose stricter requirements, such as a higher down payment or the need for additional cash reserves. Borrowers with a 640 score can expect to pay higher interest rates on mortgages, which significantly increases the total cost of the loan over its lifetime.

For auto loans, a 640 credit score allows for approval, but borrowers face higher interest rates than individuals with better credit. Lenders specializing in fair credit financing offer options, though the annual percentage rate (APR) reflects the perceived higher risk. For credit cards, a 640 score may qualify an individual for basic or store credit cards, but not those with the most favorable rewards or lowest interest rates. Secured credit cards, which require a security deposit, are a viable option for those looking to build or rebuild credit with a 640 score.

Personal loans and student loans are possible with a 640 score, but often accompanied by higher interest rates and less flexible terms. Some online lenders are more accommodating for personal loans at this score level. For rental applications, while credit score is a factor, landlords consider income, employment stability, and other debts. A 640 score may lead to additional scrutiny or require a larger security deposit.

Key Components of Credit Scoring

Credit scores are derived from an individual’s credit report, with different factors carrying varying levels of importance. Understanding these components provides insight into how a score is built. The two most widely used scoring models, FICO and VantageScore, consider similar categories but assign different weightings.

Payment history is the most significant factor in both FICO and VantageScore models. It accounts for 35% of a FICO score and up to 41% of a VantageScore, reflecting on-time bill payments. A record of timely payments demonstrates financial responsibility, while even a single late payment (30 days or more overdue) can negatively impact a score, with severity increasing for prolonged delinquencies.

Another influential component is credit utilization, which measures the amount of credit used relative to the total available credit. This factor makes up 30% of a FICO score and 20% of a VantageScore. Maintaining a low credit utilization ratio, ideally below 30% across all revolving accounts, helps avoid a negative impact on the score.

The length of an individual’s credit history represents 15% of a FICO score and 20-21% of a VantageScore (often combined with credit mix). This factor considers the age of the oldest account, the newest account, and the average age of all accounts. A longer history of responsible credit management contributes positively to a score.

Credit mix, or the variety of credit accounts an individual manages, accounts for 10% of a FICO score and is part of the combined “age and mix of credit” factor for VantageScore. Lenders prefer to see revolving credit, such as credit cards, and installment loans, like mortgages or auto loans. Demonstrating the ability to handle different types of credit responsibly is beneficial.

New credit activity, including recent applications and newly opened accounts, impacts a portion of the score: 10% for FICO and 5-11% for VantageScore. Each time an individual applies for new credit, a “hard inquiry” is recorded on their credit report, which can cause a small, temporary dip in the score. Opening multiple new accounts in a short period signals higher risk to lenders.

Steps to Enhance Your Credit Score

Improving a 640 credit score requires consistent effort and strategic financial habits. Implementing specific actions can gradually lead to a higher score. Positive changes in credit behavior are reported to credit bureaus, leading to score improvements.

Paying bills on time is the most impactful action to improve a credit score. Since payment history carries the heaviest weight in credit scoring models, ensuring all monthly payments—from credit cards to loan installments—are made by their due dates is important. Setting up automatic payments or calendar reminders can help maintain this consistency and prevent missed payments.

Reducing credit utilization is an effective strategy. Lower the amount of debt owed on revolving credit accounts relative to the total available credit. Strategies include paying down existing balances, making multiple smaller payments throughout a billing cycle rather than one large payment, or requesting a credit limit increase without increasing spending. Keeping credit card balances well below 30% of the available limit is recommended.

Regularly reviewing credit reports is a protective step. Individuals are entitled to a free credit report weekly from each of the three major credit bureaus (Equifax, Experian, and TransUnion) through AnnualCreditReport.com. Checking these reports allows for the identification and dispute of any inaccuracies or fraudulent activity that can suppress a credit score.

Avoiding new credit applications helps prevent multiple hard inquiries on a credit report. Each hard inquiry causes a small, temporary dip in a credit score. Apply for new credit only when truly needed and space out applications to minimize the cumulative impact on the score.

For those with a limited credit history or a fair score, maintaining a diverse mix of credit is beneficial. Demonstrating the ability to manage both revolving credit (like credit cards) and installment loans (such as a secured personal loan) is key. Secured credit cards, backed by a cash deposit, and credit-builder loans are options to establish or rebuild credit history, as they report payment activity to credit bureaus.