Your credit score is more important than you might think. It can affect your job opportunities, the interest you pay on loans, and even your ability to get a loan in the first place. Since the Great Recession and the housing market downturn, getting a loan has become more challenging. A FICO score of 650, which was once considered decent for borrowing, may now be problematic.
The Fair Isaac Corporation, which created the FICO score, rates credit scores from 300 to 850. A report from 2009 showed that over 58% of US scores were 700 or higher, while only 15% of Americans had a score of 650. Surprisingly, just 27% of people had scores of 649 or lower.
**How a 650 Score Affects Loan Costs**
If your FICO score is between 650 and 699, lenders see you as a moderate credit risk. This means you’ll probably pay higher interest rates than people with scores over 700. For a car loan, this could mean paying hundreds more in interest, and for a home loan, the extra costs could be in the 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 habits over 40 years but different credit scores: one has a score of 750, the other 650. The friend with a 750 FICO score pays 10.99% on her credit cards, while the one with a 650 score pays 19.99%. These high rates make it hard to pay down the principal on debt, especially if you’re making only minimum payments. Even more strikingly, on a 30-year, $400,000 mortgage, the friend with the lower credit score will pay $73,217 more in interest.
**The Bright Side of a 650 Credit Score**
Having a 650 credit score isn’t entirely bad news. You’re not far from 700, a score considered low-risk. With some effort and smart financial moves, you could boost your score above 700, joining the 58% of Americans who enjoy better credit and lower interest rates.
**Steps to Improve Your Credit Score**
Start by reading articles like “How to Improve Your Credit Score” to educate yourself. Check your credit scores for free online and track your progress as you take steps to improve. In today’s economy, a 650 credit score can be a setback, but with dedication and strategic planning, you can reach a score above 700. Aim to boost your score before your next major purchase.