So you check your credit score and find out it’s 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 November 2013 is 681 (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.
What problems will a 650 score cause you?
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.
In addition to not being able to qualify for some loans and lines of credit, a 650 will also mean you will probably pay 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 percent APR can cost you thousands of dollars extra, depending on the length of the loan (or how long you carry a balance on a card).
So is 650 a good credit score? Unfortunately for 2014 it’s not. But the good news is, if that’s your number, you are not far off from attaining a good score.
How to 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 pay your bills on time - This may seem like common sense but a lot of people don’t always do it. Late payments may be reflected on your credit report. Worse yet is a charge-off (bad debt), so definitely don’t let that happen.
- Don’t have 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 than 15 percent to 25 percent of your available credit on any given card. Using any more than that reportedly can have a negative impact on your credit score.
- 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).
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 monthly balance, so whether you pay it off in full or not, it will still be reported. So my advice is to have a few different credit cards, but never carry a balance into the next payment cycle on any of them.
Use them on occasion and always pay them off in full. For our listing of the best credit cards for 650 credit score range, check out these cards for average/fair credit scores
Updated April 2, 2014