Credit scores help lenders figure out if you qualify for the best credit cards, such as those with the lowest interest rates, favorable terms, and reduced fees. While credit scores have been on the rise since 2019, with the average credit score now being 714, more than 37% of Americans have a score less than or equal to 650. But is 650 a good credit score? It’s actually considered ‘fair’–let’s dive into why.
What Is a Credit Score?
A credit score is a number lenders, creditors, and financial institutions use to decide how risky you might be to lend to. There are various credit scoring models, but the most commonly used is the FICO score, which ranges from 300 to 850.
Here’s how FICO scores are classified:
- 300 to 570: Poor
- 580 to 699: Fair
- 670 to 739: Good
- 740 to 799: Very good
- 800 to 850: Exceptional
Higher credit scores indicate that you might pay back your loan sooner, so lenders may provide loans without a hitch. However, if you have a fair credit score, you might be considered ‘subprime,’ which may mean getting loans with higher interest rates, or getting more credit card application rejections.
This is why many people opt for professional credit repair services–the benefits of which far outweigh any credit repair costs.
Is 650 a Good Credit Score?
A score of 650 is considered a ‘fair’ credit score. While it isn’t a high credit score, it’s not a poor one, either. So, while lenders may drag their feet when figuring out your creditworthiness, you’ll still be less risky to give a loan to.
Additionally, more than 12.5% of cardholders have a fair credit score. That means you’ll be able to qualify for several loans and credit lines. However, you may face contract limitations and higher interest rates and fees compared to people with higher scores.
How Is a Credit Score Calculated?
If you’re looking to get better loans, you should focus on improving your credit score. Let’s start by taking a look at the factors that affect your FICO credit score:
1. Payment History (35%)
Your payment history shows whether you have consistently paid your bills and met other debt obligations on time. If you have, you’ll get a higher credit score.
If you have a history of making late or missing payments, these can show up on your credit reports for up to seven years and even go into collections, which may have a negative impact on your score.
2. Credit Utilization (30%)
Your credit utilization ratio contrasts the amount you owe against the credit available to you. If you’re using a lot of credit at the same time, lenders might think you’re overextending and have a higher risk of making later payments or defaulting.
3. Length of Credit History (15%)
The longer your credit history is, the better your credit score will be. So, if you started using credit just three years ago, don’t expect to have a perfect 800 score just yet.
4. Credit Mix (10%)
Your credit mix shows the type of credit you have, such as credit card and installment accounts. A healthy mix of credit types is essential if you don’t want to be declined when applying for a loan.
5. New Credit (10%)
If you apply for new credit lines every month, you might be subject to hard inquiries, which is when your lender takes a thorough look at your credit report. These might cause your credit score to drop by one to five points.
How You Can Improve Your Credit Score
Now that you know which factors influence your credit score, let’s learn what you can do to address them:
1. Pay on Time
Paying on time is crucial if you’re looking to improve your credit score. So, consider automating payments to ensure none is late. You could also appoint a specific day to make all your debt repayments.
2. Lower Your Credit Utilization Rate
You should use no more than 30% of the credit limit on your credit cards. This helps lenders ensure that while you’re using several credit lines, you aren’t maxing them out, which means the chances of you paying back the loan are higher.
3. Become an Authorized User
If you know someone with a good (or better) credit score, you can ask them to add you to the account as an authorized user. When you’ve been added as an authorized user, the account’s history and activity may be reported on your credit report, improving your credit score.
If you need guidance on how best to improve your credit health, a reputable credit repair company like The Phenix Group can help! Reach out today for your free consultation, and we’ll work on getting your credit back on track.
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