How is 650 a Good Credit Score?

When you apply for a loan or credit, lenders usually check your credit score. This is done to verify the creditworthiness of the borrower and assess their capacity to repay the loan. A credit score is a 3-digit score that ranges between 300 to 900.

One may consider 650 as a decent credit score, but is it? This article explores whether a 650 credit score is sufficient, in case you plan to take out a loan or apply for a credit card.

What is a Credit Score?

Credit score is an indicator of a person’s credit history. Lenders typically assess a person’s credit history to determine their creditworthiness. A credit score usually ranges from 300 to 850, representing one’s credit risk. Lenders or creditors consider your credit scores as a key factor when approving a personal loan. The personal loan interest rates and terms are calculated based on the individual’s credit score. The higher the credit score, the better chances of loan approval, at favourable terms. 

Understanding a 650 Credit Score

The credit bureaus categorise scores into excellent, good, fair, bad, and poor. 650 is considered a fair credit score. However, it implies that the credit history is limited or there may be few records of late payments or high credit utilisation. With a 650 credit score, one may find it tough to get an instant loan at favourable terms. One needs to improve it, by making timely EMI payments and clearing any old pending debts. 

Is 650 a Good Credit Score?

As per credit rating bureaus, a 650 CIBIL score is considered a “fair score”. A credit score of 750 and above is considered a good credit score by most lenders. While it is possible to get a personal loan for a CIBIL score of  650, loan terms and interest rates may be less favourable. Thus, building your credit score is necessary.

Factors Affecting a 650 Credit Score

To understand what factors affect a 650 credit score, it is imperative to know how the credit score is calculated. Credit bureaus typically calculate credit scores. Credit scores are calculated by taking one’s credit history and credit use into consideration. This data is put into a complex algorithm that calculates it, known as the credit scoring model. Scores might slightly differ based on the credit bureau calculating it, the time it is calculated, and what loan type it is calculated for. Common factors that affect credit scores include:

• Payment History
• Credit Utilisation Ratio
• Credit Age
• Credit Mix
• New Credit Applications 
• Settling the loan

Benefits of Having a 650 Credit Score

While a 650 credit score is considered “fair” by credit bureaus, it can still give you a few benefits:

Credit: To be eligible for credit and loans, you only need to have a credit score of 650. Many lenders do offer a personal loan for a CIBIL score of 650, however, the loan terms and interest rates offered may be higher.

Opportunity to build high credit: A credit score of 750 is considered a good credit score. With good credit-building habits, it is easier to build it from a 650 CIBIL score.

Lower security deposits: A 650 CIBIL score still implies a fair level of creditworthiness, thus you can get utilities and rental agreements at lower security deposits.

Challenges of a 650 Credit Score

A 650 CIBIL score is at the cusp of a good credit score, however, it is still less than the ideal score. Most lenders prefer a credit score of 750 and above. A low credit score has the following challenges:

Loan approval is lower: Getting a 650 CIBIL score loan is limited. It still implies a certain risk and the lender may not approve the loan. However, if a lender does approve a loan, it will be at high interest rates and lower loan amounts.

Limited credit card option: If the credit score is low, it also limits the number of credit card approvals. If one does manage to get a credit card, they may get it at a low credit limit or a secured credit card. Also, they may not get additional services offered for premium credit card members.

High interest rate: The lender may offer a loan but at a higher interest rate for a lower credit score. It is because a 650 credit score still implies a certain risk.

How to Improve a 650 Credit Score?

While a 650 credit score is not ideal, one can build a higher credit score within a few months by following the mentioned steps: 

Pay EMIs on Time: Do pay the EMI bills each month, on time. Defaulting on an EMI impacts credit score and lowers it.

Regular Credit Checks: Ensure that you regularly check your credit report. Check for any errors and report them, in case you find them.

Keep Credit Accounts Open: A long credit history gives an insight into all the past debts that have been paid on time. This also adds to improving credit scores. If one does close the account, it can impact their credit score.

Low Credit Utilisation Ratio: It is ideal to utilise up to 30% of the loan limit. Keeping credit utilisation around 30% makes a positive impact on the credit score.

Avoid Maxing Out Credit Cards: If you need to purchase something expensive, distribute the credit across multiple credit cards. Avoid maxing out any credit card, since it leads to high credit utilisation, negatively impacting the credit score.

How to Maintain a 650 Credit Score?

To maintain a 650 credit score, following these steps will improve one’s credit score.

Timely Bill Payment: Credit bureaus keep track of bill payment history. Defaulting on even one EMI negatively impacts the credit score. It is important to make timely credit bill payments.

Limit New Credit Applications: Simultaneously applying to multiple credit cards can impact your credit score. Thus, to maintain a good credit score, limit new credit applications.

Maintain Credit Mix: It is important to have a mix of both secured and unsecured loans. Having too many unsecured loans can impact your credit score. Thus, it is good to maintain a credit mix. 

Comparison of Credit Score Ranges

Credit score is a 3-digit score that ranges between 300 to 900. Additionally, each range has a different rating and determines the creditworthiness of the borrower.

Conclusion

A credit score is indicative of how likely one can get a loan or credit. A credit score of 650 is at the cusp of good credit. Thus, a lender may approve a loan but on strict terms like high interest rates and shorter loan tenure. One needs to build a good credit score to get a loan at better terms. You can build good credit by making timely EMI payments, clearing old debts and keeping a low credit utilisation ratio. Also, it is important to track credit history regularly, for any errors.