What Is a 656 Credit Score? Is It Good or Bad?

A credit score serves as a numerical representation of an individual’s creditworthiness. Lenders utilize these scores to assess the risk associated with extending credit, influencing decisions from loan approvals to interest rates. While various scoring models exist, such as FICO and VantageScore, they generally fulfill the same fundamental purpose of evaluating a consumer’s financial reliability.

Understanding a 656 Credit Score

A 656 credit score falls into different categories depending on the scoring model used. For FICO Scores, which are widely used by lenders, a 656 score is considered “Fair.” The FICO scoring model ranges from 300 to 850, with “Fair” scores falling between 580 and 669.

In contrast, a 656 score places an individual in the “Good” category when evaluated by the VantageScore model. VantageScore, also ranging from 300 to 850, defines “Good” credit as scores between 661 and 780. While a 656 score suggests an acceptable level of credit management, particularly for VantageScore, it also indicates there is significant room for improvement to access more favorable financial products and terms.

How a 656 Score Impacts Your Finances

A 656 credit score can influence the terms and conditions offered for various financial products. When applying for credit cards, individuals with a 656 score are approved, but the cards may come with higher interest rates, lower credit limits, or fewer rewards programs compared to those available to applicants with higher scores. This means the cost of borrowing on credit cards can be elevated.

For auto loans, a 656 score results in higher interest rates, increasing both monthly payments and the total cost of the vehicle over the loan’s term. Borrowers in the “Fair” credit range for FICO, which includes 656, may face annual percentage rates (APRs) for new car loans ranging from 7% to 9%, while those with excellent credit might secure rates closer to 3%. Similarly, personal loans will carry higher interest rates, reflecting the increased risk to the lender.

Securing a mortgage with a 656 credit score can be more challenging, as this score is on the lower end for conventional loan approval. Lenders may require a higher down payment or offer higher interest rates if a conventional loan is approved. For instance, a borrower with a 650 credit score might face a mortgage interest rate about one percentage point higher than someone with a 750 score. An FHA (Federal Housing Administration) loan, which has more lenient credit score requirements, might be a more accessible option. Beyond loans, a 656 score can also affect rental applications, insurance premiums, and utility deposits, potentially leading to higher security deposits or less favorable terms.

Key Factors Determining Your Credit Score

Your credit score is calculated based on several factors, each weighted differently by credit scoring models like FICO. Payment history is the most significant factor, accounting for 35% of a FICO score. This category assesses whether payments have been made on time, with late or missed payments having a negative impact.

The amount owed, also known as credit utilization, constitutes 30% of your score. This factor compares the amount of credit used against the total available credit, with keeping utilization low (below 30%) viewed favorably by scoring models. The length of your credit history contributes 15% to your score, reflecting the age of your oldest and newest accounts and the average age of all accounts. A longer history of responsible credit management results in a higher score.

New credit, including recent applications and newly opened accounts, makes up 10% of the score. Numerous recent credit inquiries or new accounts can temporarily lower a score, as it may signal higher risk to lenders. Finally, your credit mix, which considers the diversity of credit types (e.g., installment loans like mortgages or auto loans, and revolving credit like credit cards), accounts for the remaining 10%. Demonstrating responsible management across different credit types can positively influence your score.

Steps to Improve Your Credit Score

Improving a 656 credit score involves consistent effort. Prioritizing on-time payments for all accounts is important, as payment history carries the most weight in credit scoring models. Setting up automatic payments or reminders can help ensure bills are never missed, as even a single payment reported 30 days late can negatively impact your score.

Reducing credit utilization is an impactful step; aim to pay down revolving credit balances to keep the amount of credit used below your available limits, under 30%. This demonstrates responsible credit management and can lead to a score increase. Avoid opening too many new credit accounts in a short period, as each new application can lead to a temporary dip in your score due to a hard inquiry.

Regularly reviewing your credit reports from all three major bureaus (Equifax, Experian, and TransUnion) is important to identify and dispute any errors, which could be lowering your score. Free copies of your reports are available annually through AnnualCreditReport.com. If establishing more credit history is needed, responsibly using a secured credit card or a credit-builder loan can help build positive payment patterns. Keeping older, well-managed accounts open, even if unused, can benefit the length of your credit history, contributing positively to your score.