Your credit score is a crucial indicator of your financial health, influencing your ability to secure loans, credit cards, and even housing. A 651 credit score places you in a specific category within the credit scoring system, and understanding what this score means, its impact on your financial options, and how you can improve it is essential for making informed decisions. This article will delve into whether a 651 credit score is good or bad, explore the factors that influence this score, and provide actionable tips for improving it.
Understanding Credit Scores
Before we explore the specifics of a 651 credit score, it’s essential to understand how credit scores work. Credit scores are three-digit numbers that range from 300 to 850, with higher scores indicating better creditworthiness. They are calculated based on information in your credit report, which includes your credit history, payment behavior, the amount of debt you owe, the length of your credit history, and more.
The most commonly used credit scoring model is the FICO Score, developed by the Fair Isaac Corporation. FICO Scores are used by most lenders to assess the risk of lending money to individuals. Another widely used scoring model is the VantageScore, which also ranges from 300 to 850. While the specific algorithms for calculating FICO and VantageScores differ slightly, they both rely on similar factors.
Credit Score Ranges
Credit scores are typically categorized into the following ranges:
- Excellent (800-850): Individuals with scores in this range are considered to have exceptional credit and are likely to receive the best interest rates and loan terms.
- Very Good (740-799): A score in this range indicates a strong credit history and good credit management. Borrowers are seen as low-risk.
- Good (670-739): This range is considered good, and individuals are likely to be approved for most credit products with favorable terms.
- Fair (580-669): A score in this range suggests that an individual may have had some credit issues in the past. Borrowers may still be approved for credit, but they might face higher interest rates.
- Poor (300-579): Individuals with scores in this range are considered high-risk borrowers and may have difficulty securing credit.
Where Does a 651 Credit Score Fall?
A 651 credit score falls into the “Fair” category, which means that while it’s not a bad score, it’s not considered good either. People with a 651 credit score are viewed as having a moderate level of credit risk. Lenders might approve credit applications, but the terms offered may not be as favorable as those given to individuals with higher scores. For instance, you might face higher interest rates, lower credit limits, and stricter loan terms.
What a 651 Credit Score Means for You
A 651 credit score suggests that you’ve had some positive credit behavior, but there may be a few negative marks on your credit report. These could include late payments, high credit card balances, or a relatively short credit history. While you may be able to qualify for credit products, you may not get the best interest rates or terms. Understanding the impact of this score on different financial products can help you navigate your options.
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Credit Cards:
- With a 651 credit score, you may still qualify for credit cards, but your options could be limited to those with higher interest rates or annual fees. You might not be eligible for premium rewards cards or those offering the best perks.
- Secured credit cards, which require a security deposit, could be an option if you’re looking to build or rebuild your credit.
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Loans:
- Personal loans are generally available, but with a 651 credit score, you may face higher interest rates compared to borrowers with better credit. The loan amounts you qualify for might also be lower.
- Auto loans are another area where a 651 score can impact the terms. While you can likely secure an auto loan, the interest rate may be higher, leading to larger monthly payments.
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Mortgages:
- Qualifying for a mortgage with a 651 credit score is possible, but you might not get the most favorable interest rates. A higher interest rate can significantly increase the cost of your mortgage over time.
- Lenders may also require a larger down payment or offer you a smaller loan amount.
Factors Affecting Your 651 Credit Score
To understand how to improve your credit score, it’s important to know what factors influence it. Several key elements are considered when calculating your credit score:
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Payment History (35% of your score):
- This is the most significant factor in your credit score. It includes whether you’ve paid your past credit accounts on time. Late or missed payments can negatively impact your score.
- A history of on-time payments can help improve your credit score over time.
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Amounts Owed (30% of your score):
- This refers to the total amount of debt you owe, including credit card balances, loans, and other debts. High credit card balances, particularly those close to your credit limit, can lower your score.
- Keeping your credit utilization ratio (the amount of credit you’re using compared to your credit limit) low is crucial. Ideally, your credit utilization should be below 30%.
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Length of Credit History (15% of your score):
- The length of time you’ve had credit accounts open plays a role in your score. A longer credit history typically results in a higher score.
- Even if you don’t use certain credit accounts regularly, keeping them open can positively impact your credit score.
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Credit Mix (10% of your score):
- This factor considers the variety of credit accounts you have, such as credit cards, installment loans, mortgages, etc. A diverse credit mix can contribute positively to your score, though it’s not a major factor.
- Having different types of credit can show lenders that you can manage multiple types of credit responsibly.
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New Credit (10% of your score):
- Applying for new credit accounts can temporarily lower your score, especially if you apply for several accounts in a short period. This is because each application results in a hard inquiry on your credit report.
- Limiting the number of new credit applications can help protect your score.
How to Improve a 651 Credit Score
While a 651 credit score isn’t necessarily bad, there is always room for improvement. By taking specific steps to improve your credit habits, you can raise your score over time and gain access to better financial opportunities. Here are some strategies to help you improve your credit score:
1. Review Your Credit Report
Start by obtaining a copy of your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. You’re entitled to one free report from each bureau every year through AnnualCreditReport.com. Carefully review your credit report for any errors or inaccuracies that could be dragging down your score. If you find any mistakes, dispute them with the credit bureau to have them corrected.
2. Pay Your Bills on Time
Since payment history is the most significant factor in your credit score, it’s crucial to make all your payments on time. Consider setting up automatic payments or reminders to ensure you don’t miss any due dates. Even one late payment can have a substantial negative impact on your score, so consistency is key.
3. Reduce Your Credit Card Balances
If you’re carrying high balances on your credit cards, work on paying them down. Aim to keep your credit utilization ratio below 30% of your available credit limit. For example, if your total credit limit is $10,000, try to keep your total outstanding balance below $3,000. Paying down debt not only improves your credit score but also reduces the amount of interest you pay over time.
4. Avoid Opening New Credit Accounts
While it might be tempting to open new credit accounts, especially if you’re receiving pre-approved offers, it’s generally best to avoid doing so when you’re trying to improve your credit score. Each new application results in a hard inquiry, which can temporarily lower your score. Focus on managing your existing credit accounts responsibly before applying for new credit.
5. Diversify Your Credit Mix
If your credit portfolio is limited to just one type of account (such as credit cards), consider diversifying by adding different types of credit, such as an installment loan or a secured credit card. However, only take on new credit if it’s necessary and if you can manage the payments responsibly.
6. Keep Old Accounts Open
The length of your credit history matters, so avoid closing old credit accounts, even if you don’t use them frequently. Keeping these accounts open can contribute positively to your score by extending the average age of your credit history.
7. Consider a Secured Credit Card
If you have difficulty qualifying for traditional credit cards due to your credit score, a secured credit card might be a good option. Secured cards require a cash deposit, which serves as your credit limit. By using the card responsibly and making timely payments, you can gradually improve your credit score.
8. Seek Professional Advice
If you’re struggling to manage your credit or debt, consider seeking advice from a credit counseling agency. A credit counselor can help you develop a budget, negotiate with creditors, and create a plan to improve your credit score. Be sure to choose a reputable, non-profit agency to ensure you’re getting reliable advice.
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Freya Parker