So you check your credit score and learn that it is 650. But what does that number mean? Is 650 a good or bad credit score?
650 vs. average?
The average credit score in the United States fluctuates and is hard to pin down, given that there are so many different types of credit scores and that the companies that calculate them keep their data under wraps. According to Experian data, the average VantageScore as of Q4 2014 (when they last published their annual “State of Credit” data) is 666 (VantageScores range from 300 to 850). However, in certain metro areas (such as in the Midwest), the average credit score can be up to 20 or more points above average. So any way you cut it, a score of 650 (whether it’s FICO or VantageScore) is probably below average.
Will a 650 score cause you any problems?
Even during prosperous economic times, this score would not be sufficient to qualify you for many mid-tier to high-end credit cards or for the best rates on auto loans. Now that the banks have tightened up after the great recession, a 650 score will do even less for you.
That’s not to say you won’t qualify for any loans and lines of credit. However, a score of 650 will generally mean a higher interest rate for the ones you can actually qualify for. This can actually cost you quite a bit of money; the difference between a 0 percent or 12.99 percent APR and a 21.99% APR can cost you thousands of dollars extra, depending on the length of the loan (or how long you carry a balance). When it comes to credit cards, a score of 650 might mean a low credit limit. This can be inconvenient for large purchases. Plus, you’ll have to be very diligent in order to keep your balance low to avoid high credit utilization (which can hurt your credit score further).
So is 650 a good credit score? Unfortunately for 2015 (or in any year in the past for that matter) it’s not considered a very good score. But the upside is that you are within striking distance of a score range that is considered good and it’s quite possible to improve your score in a relatively short period of time with the right moves.
How can you improve your credit score?
There are many different criteria that go into the calculation of your score, but here are a few tips to help you out…
- Always, always, always pay your bills on time – This may seem like common sense but a lot of people don’t always do it. While a day-late payment will practically never end up on your credit reports, payments over 60 days late will. Even worse is a charge-off (bad debt), so definitely don’t let that happen. So, pay online several days in advance or mail your payment a full week before it’s due to ensure there are no postal delays. Remember – the due date means that’s when it’s due at the bank, not when you mail it. And, pay your bill in full if possible.
- Don’t carry high credit card balances – If you have a $5,000 credit limit on a card, it doesn’t mean you should be using $3,000 of it (60 percent of the limit). A small part of the score is based on what percentage of your credit you use — no one knows the magic number but most experts recommend never using more 30 percent of your available credit on any given card. Using any more than that reportedly can have a negative impact on your credit score. What if you need to make a big charge (like plane tickets) on your credit card? You can still keep your utilization low by making multiple payments per month. As long as you’ve paid down your balance to below 30 percent of your limit by the day your statement cuts (and your bank reports your balance), the credit bureaus never need to know you had 80 percent utilization earlier in the month.
- Have a good mix of active credit accounts – If you have no negative history, the reason you have a 650 credit score may be because you don’t have enough lines of credit. In order to have a good credit score, generally you need to have both revolving lines of credit (credit cards) as well as installment loans (loans you pay a set amount on each month, like a mortgage or card loan). Even a few credit cards used wisely can get you an excellent credit score — no installment loans necessary.
Best credit cards for scores in this neighborhood?
Remember, you do NOT need to carry balances on your credit cards to achieve a good score. What’s reported to the credit bureaus is your statement balance, so whether or not you pay it off in full, it will still be reported. My advice is to have a few different credit cards, but to never carry a balance into the next payment cycle on any of them. Doing so lets you build credit without paying interest.
Use your cards on occasion and always pay them on time (prior to the due date, actually) and in full each month. For our listing of the best credit cards for 650 credit score range, check out these cards for average/fair credit scores
Updated January 13, 2016