Believe it or not, your credit score is pretty important. It can affect job opportunities, how much interest you pay on loans, and whether you can even get a loan at all. Since the Great Recession and the housing market crash, getting a loan has become tougher. A FICO score of 650, which used to be considered just fine for borrowing, might now be a problem.
The Fair Isaac Corporation, which created the FICO score, rates scores between 300 and 850. In a 2009 report, it was found that over 58% of US scores were 700 or higher, and only 15% of Americans had a score of 650. Surprisingly, just 27% had scores of 649 or below.
How a 650 Score Affects Loan Costs
If you have a FICO score between 650 and 699, you’re seen as a moderate credit risk. This means you’ll probably face higher interest rates than someone with a score over 700. For a car loan, this could mean paying hundreds more in interest; for a home loan, the added cost could be thousands.
Finance journalist Liz Pulliam-Weston explains this in her article “Lifetime Cost of Bad Credit: $201,712.” She compares two friends with similar financial behaviors over 40 years but different credit scores: one at 750 and the other at 650. The friend with a 750 score pays 10.99% on her credit cards, while the one with a 650 score pays 19.99%. With such high rates, it’s hard to pay down the principal and quickly reduce the debt if only minimum payments or slightly more are being made. More strikingly, on a 30-year, $400,000 mortgage, the friend with the lower credit score ends up paying $73,217 more in interest compared to the friend with the higher credit score.
The Bright Side of a 650 Credit Score
Having a 650 credit score isn’t the end of the world. You’re not that far from 700 – a score considered low-risk. With some effort and smart moves, you can boost your score to over 700, joining the 58% of Americans who enjoy lower-risk credit profiles and lower interest rates.
Ways to Improve Your Credit Score
Learn more by reading articles like “How to Improve Your Credit Score.” Check your credit scores for free online and keep track of your progress. In today’s economy, a credit score of 650 can be significant, but with persistence and planning, you can raise your score above 700 and benefit from lower interest rates. It’s time to improve your score before your next big purchase.