It's not often that people think about their credit scores prior to when they're looking for a loan or credit card.
Most of us just live our daily lives, perform whatever financial actions we must, and assume our credit is in good shape as long as we don't miss a payment.
This assumption isn't blatantly wrong, but there is a lot more to the story than that. While payment history does make up a significant portion of our credit score, it's not the only consideration.
And staying focused on your credit score only when it's time to take out new credit can lead to a massive missed opportunity.
The choices you make before you need credit make a huge impact on your ability to get the credit when you need it.
Not just your payment history, but your credit utilization, length of time your accounts are open, and types of credit can all impact your score (among other factors).
So if you've recently glanced at your credit score and found that you've fallen into a 600-650 range, there are reasons that may have happened that you may not realize.
And, although your range can be improved over time, your ability to get credit now (and the cost of that credit) will be impacted by your score.
How a 600-650 Credit Score Range Looks to Lenders
The unique thing about a credit score that falls between 600 and 650 is that it can put you in one of two major credit brackets.
Your credit can either be considered "bad" or "fair," which means you may be limited on the types of loans you qualify for.
Credit Score Ranges and Quality
|Credit Score Ranges||Credit Quality||Effect on Ability to Obtain Loans|
|300-559||Very Bad||Extremely difficult to obtain traditional loans and line of credit. Advised to use secured credit cards and loans to help rebuild credit.|
|560-649||Bad||May be able to qualify for some loans and lines of credit, but the interest rates are likely to be high.|
|650-699||Average/Fair||Eligible for many traditional loans, but the interest rates and terms may not be the best.|
|700-749||Good||Valuable benefits come in the form of loans and lines of credit with comprehensive perks and low interest rates.|
|750-850||Excellent||Qualify easily for most loans and lines of credit with low interest rates and favorable terms.|
MyBankTracker surveyed lenders and found there are two major factors to consider: what kind of interest rate you can expect for lines of credit, and whether or not you actually qualify for a mortgage, auto loan, or any other type of loan.
A score below 630 is considered bad credit while scores between 650 to 699 are considered fair credit. Both of these ranges will limit you in terms of obtaining new credit.
What Type of Loan or Credit Line Are You Looking For?
Contrary to popular belief, we all carry more than one credit score - far more than one, in fact.
Our credit scores vary based on the credit reporting bureau reporting the score, based on the type of credit score used, and sometimes even based on specific lending scoring algorithms.
For example, your credit score will vary based on whether you're trying to obtain a home loan, auto loan, or credit card, even if it's from the same score type and credit reporting bureau.
In short, we all have upwards of 30 or more credit scores and the lenders approving us for credit will use a different scoring model based on the type of credit we're trying to obtain.
That means you don't just want to understand what range your credit score falls into, it's also important to understand how that can change the availability and cost of the type of credit you need at the moment.
What Happens if You're Looking for An Auto Loan
You should have no major problem finding an auto loan as long as you have a steady income.
The interest rate you qualify for depends on a variety of factors such as how much of a down payment you provide, the amount you wish to take out, the length of your loan, and the lender.
If your credit is fair, you should be able to find an auto loan that offers five to ten percent interest throughout the term of your loan.
If you have a bad credit score, on the other hand, you will most likely have an interest rate of 10 percent or more.
The best way to avoid paying higher interest when you have bad credit is to have a big down payment.
Lenders like to see more money being put towards the vehicle, and will reward you by lowering your interest rate. This move will reduce your monthly car loan payments.
How Your Credit Score Can Affect Your Next Car Loan
|Credit Score Range||60-Month new Car Loan||40-Month Used Car Loan|
What Happens if You're Looking for A Home Loan?
Home loans are still possible with a credit score that falls between 600 and 650, but you may need to receive government assistance in order to qualify for a loan.
Find lenders that specialize in FHA loans and learn what type of home loan you can qualify for.
Unless you have a substantial down payment, anticipate a high-interest rate on your home loan. Before you commit to a home loan, it’s wise to take steps to raise your credit score so that it is above 650.
The higher your credit score and the better your credit history, the lower your interest.
Since a mortgage is such a long-term commitment, take the time to raise your score in order to obtain the lowest interest rate that is available to you.
If you decide to take out a home loan, you can expect an extremely high rate. Your rate may even be as high as 6.5 percent.
Compare that to a someone with better credit who qualifies for a lower interest rate of 4.5 percent for a home loan valued at $300,000.
At 6.5 percent, you will pay a total of $488,000 throughout the term of the loan, or $1,400 a month.
Yet with an interest rate of 4.5 percent, you will pay a total of $397,000 for the entire loan, or $1,100 a month.
That is a savings of $92,000 throughout the term of the loan, or $300 less if you had better credit.
While you may be able to qualify for a home loan, it may be wiser to wait to until your credit score has improved before you commit to a loan.
If it is absolutely necessary to purchase a home now, consider refinancing a few years down the line.
How Your Credit Score Can Affect Your Future Mortgage Rate
|Credit Score Range||30-Year Fixed Rate Mortgage||5-year fixed rate mortgage||7/1 ARM|
Top Credit Cards for 600 - 700 Credit Score Ranges
There are still a lot of valuable credit cards you can open with fair credit.
Even though you probably don’t qualify for top tier cards with lucrative benefits and rewards, it might still be worth a shot to apply credit cards such as Chase Slate, which can actually help you improve your credit.
If you're a student, the Discover it can be a valuable card to add to your pocket since it can both earn you cash back, as well as provide you with a free FICO Credit Score online and on monthly statements.
Remember, applying for any credit card means your credit will be pulled, which dings your score.
Only apply for a new credit card when you feel it is absolutely necessary. Remember to also, practice responsible credit habits and pay your bills on time.
When you do get a new credit card, you can expect an interest rate of 20% or more at this credit range.
Avoid accumulating debt if you have bad credit (or in general, since paying off debt can take years once it builds up - and it can cost you a significant amount of money in interest).
Try your best to pay at least double the minimum due if you can't pay your bill in full at the end of every month - this will reduce your overall debt, as well as help improve your credit score faster.
What Happens If You're Looking for a Personal Loan?
As long as you have a steady source of income and don't max out your credit cards, you should be eligible for a personal loan.
How much you are eligible for, the interest rate and terms and conditions of the loan depend on how much you wish to take out, as well as your current monthly income.
Expect a higher-than-average interest rate if your credit score is below 630.
You may want to wait before you apply for a personal loan if your score is on the cusp of 630 and you are working towards raising it.
If you can afford it, consider paying off an existing credit card to raise your score (but make sure to keep the card open when you do so it can also positively impact your length of credit history).
How Your Credit Score Can Affect Your Next General Loan
|Credit Score Range||HELOC||Home Equity Loan|
How You Can Improve Your Credit Score
You can improve your credit score above 650 by paying all of your bills on time and reducing your credit utilization ratio to 30% or less.
When your overall debt is 30% or lower, you're rewarded with an improved credit score. Maintaining a low credit utilization ratio shows lenders that you have proper money management skills.
You are also less at risk for maxing out the overall amount of credit you have available, which helps puts lenders at ease when you apply for a new line of credit.
Maintaining various lines of credit is fine and can be healthy for your credit, yet opening too many lines of credit can be a detriment to your overall score.
Too many lines of credit or credit inquiries (which is what appears on your credit score when you apply for a credit card, car loan, or another line of credit) can lower your credit score.
Work at building your credit and, if you are consistent with your efforts, you will see your score slowly rise.
This will happen over the course of several months and years, so be as patient as possible because your credit score definitely has a lot of potentials to improve to good standing.
Make the effort to improve your score to 700 or higher and more doors will open for you financially.