The credit score is particularly influential when obtaining a loan. It is considered as a measure of the likelihood of you repaying the loan in the eyes of the lenders. The higher one’s credit score, the higher the possibility of one being approved and being granted a good loan agreement such as low interest rates. Therefore, the kind of loans and terms you are likely to get with a credit score of 650 are as follows. Here's a breakdown.
Meaning of Having a 650 Credit Score
Lenders may regard a 650 credit score as fair, though one may consider this score as rather low. It is below the acceptable benchmark for all lenders, which is 670 or above. You will be able to borrow money with a 650 score but be ready to pay more interest on the loan and get worse borrowing terms than those with good or excellent credit scores of 740 and above.
The main advantage of course is that a credit score of 650 is still relatively favorable in the eyes of the lenders. It is also significantly higher than the poor credit score which is at the 500-600 mark. However, your interest rates and options will still be slightly higher than if your credit score was above 700.
Mortgage Loans
Although a 650 credit score can be a problem when it comes to getting approved for a home mortgage loan, it is still possible. A loan that has been purchased or sold to Fannie Mae or Freddie Mac usually comes with a minimum credit score of 620-640. So you are slightly better than the average population. However, you may end up having to pay more upfront while also receiving less favorable interest rates.
You can apply for an FHA mortgage with a down payment of as low as 5% and a credit score starting from 500. However, you will have a higher interest rate as compared to borrowers with scores that have exceeded 700. If you have 650, you’re likely to pay around half a percentage point or more in interest.
Typically, when higher risk is offered by the lender, then the criteria for qualifying, including your income, assets, debts, and down payment requirements will be tightened. Hence, it is beneficial to do as much as possible to increase your score before applying for the program. Getting approval can be much less difficult when scoring more than 700.
Auto Loans
In particular, 650 is the score that many auto lenders would approve with at least basic terms. Thus it is possible to get approval for a car loan at this level. While interest rates of 3-5% or lower can be considered normal, rates between 5-10% or even more should be anticipated.
Interest on a 25, 000 five-year auto loan could be higher by more than 1, 000+ in interest fees with a credit score of 650 than an excellent score of 740+. You can be charged more in extra fees so make sure to look for lenders who offer better terms to those with fair credit.
Personal Loans
Credit unions and online lenders are known to be flexible when it comes to approving personal loans for individuals with a credit score of 650 or less. That is why approval is most realistic when you fulfill other requirements such as a steady income enough to meet the payments on the loan. Interest rates can be as low as 11% up to the middle of the third decade with a 650 score. Hence borrowing costs are significantly higher than the 7-15% that is offered to those with excellent credit scores.
Just like within the lower score ranges, the probability of being approved for a loan also increases with a smaller loan sum below $10,000. Lenders might request borrowers to provide a guarantee for the loan and compensate for the additional risk. It may also be shorter than the term lengths of higher-score borrowers.
Student Loans
Federal student loans and eligibility do not involve credit checks or scores in approval procedures. Therefore, if one holds a 650 credit score, this score will not influence the approval process. However, private student loans are credit-based. It is possible to get approved with a 650 score but you will be charged higher interest rates compared to those offered to the very good credit scorers. Federal loans should be exhausted before going for more expensive private loans in the process of borrowing for college.
Credit Card Approval Odds
To be sure, it is quite possible to get a credit card with a score of 650. The credit scores categorized as average and fair are still within the approval zone of the re-establishment cards. Be prepared to pay around 20-25% or more interest on these cards and be ready to transact with comparatively low credit limits.
Premium rewards cards with decent perks and reasonable interest rates start at the good to excellent credit score of 670+. But used responsibly, a credit builder or secured card now can help more in improving scores to get better options in the future.
Improving Your Credit Score
The better your credit score, the better when it comes to loan rates and approval probabilities across all loan types. For instance, if you are scoring 650 currently, you still have a lot of leeway to make a good and impressive score. Here are some tips to help boost your credit scores over time:
- It is recommended that all the monthly bills should be paid before their due date to ensure that there is a good credit repayment record.
- Credit card balances should be kept to the minimum as much as possible
- Reduce the number of credit applications that result in hard inquiries
- Dispute any mistakes with the credit reporting agencies
- Debt consolidation should be done for high balances and monthly payments as well.
You should also check your credit reports frequently so that you can monitor your progress. It is possible to see that the scores can increase by over 50 points within a year with proper credit management. So develop efficient financial practices, and one will be in a position to have cheaper loan rates in the future.
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