I recently had a question from one of our loyal visitors, I thought it was a great Q&A to share and explore a bit, here it is:
“My credit score is 695. Is that considered a good number for a credit score? If not, how do I improve it?”
-John B. from Texas.
Short Answer: 650-699 is a “Fair” Credit Score
Any credit score between 650-699 is generally considered “fair”. It doesn’t matter whether your score is 650, or 699 (or anything in between).
A “fair” credit score is seen by many lenders to be an acceptable credit risk, usually approved for credit, but you will probably not receive the more competitive offers and rates that having a good credit score can provide.
Any score below 700 could probably use some improvement. If you want some of the best rates and terms lenders have to offer, then you will want to work on raising your credit score to at least 725, which is considered by most to be well within the “good” range.
How Does a “Fair” (650-699) Credit Score Rate?
Most credit scores including FICO and VantageScore range from 300-850, the higher the better. Within that range, there are different categories, ranging from very poor, to excellent.
Here’s how a 650-699 credit score rates on the scale:
- 750-850 – Excellent (30.3% of people)
- 700-749 – Good (12% of people)
- 650-699 – Fair (18.3% of people) ← You Are Here
- 550-649 – Poor (34.1% of people)
- 300-549 – Very Poor (16.7% of people)
Credit Card Approval
Here’s an overview of what you can generally expect when applying for credit cards with a credit score in the 650-699 range (Fair).
Obtaining a Credit Card with a 650-699 (Fair) Credit Score
You should be able to get a credit card with almost any credit score.
The question is: what type of card will you qualify for?
According to TheSimpleDollar:
- Excellent Credit: With a top-notch credit score, you’ll be able to obtain the lowest advertised interest rate on most credit cards — this varies by card, but may be less than 10%. More notably, you’ll be able to qualify for the best rewards credit cards that allow you to earn incentives, including cash back, airline miles, and hotel stays. Only consumers with excellent credit will be able to qualify for the best rewards offers.
- Good Credit: If you’re a notch below top credit, you can still qualify for a wide range of cards. While you may be shut out from some of the best rewards cards, you still may qualify for 0% introductory APRs that can be ideal for balance transfers. Your ongoing interest rate may be a bit higher, creeping into the mid-teens.
- Fair Credit: You may be able to qualify for many of the same cards those with good credit can snag. The main difference is that you’ll probably be paying a much higher interest rate for the privilege, typically approaching or above 20%.
- Poor Credit: With bad credit, you can still get a credit card. However, you may be limited to a secured credit card that requires a security deposit. This deposit is often equal to or greater than the amount you can charge, and the credit-card company can take your deposit if you don’t pay your bill. If you do qualify for an unsecured card that doesn’t require a deposit, your credit limit will probably be very low.
Best Credit Cards – Approval Odds
Warning 700+ credit score is usually needed to qualify for the best credit cards
Unfortunately, with a credit score in the 650-699 range, you will probably not be eligible for the best credit cards available.
Here’s a look at the best credit cards currently available according to NerdWallet:
You may still be eligible for some of the top rated cards. But if not, don’t worry – there are other options:
Credit Cards For Average & Fair Credit
Pass This Score Should Qualify For Average & Fair Credit Cards
Nerdwallet is a leading credit card comparison site. They have compiled a great list of credit cards which they have organized and sorted based on your likelihood of approval for your credit score range.
Here’s a screenshot from NerdWallet’s Best Credit Cards For Average & Fair Credit section:
As you can see, there are definitely credit card options for people with “Fair” credit.
Here are a few more sources for “Fair Credit” credit card reviews & comparisons:
Summary: Credit Cards for Fair Credit
As you can see, with a “Fair” credit score (between 650-699), you aren’t likely to be approved for the best credit cards out there. But there are still many good options available from the sites listed above.
Make sure you use a good quality credit card comparison site (like NerdWallet), to find the one that fits your needs.
Auto Loan Approval
Here’s what you may be able to expect when applying for an auto loan with a Fair credit score.
Getting an Auto Loan with a “Fair” Credit Score (650-699)
Pass This score should qualify for an auto loan
Looking for an auto loan with a Fair credit score?
You’re in luck!
Many of those with a credit score above 500, can get an auto loan. The question is: How high is the interest rate going to be?
This is another great opportunity to use a favorite tool of mine, the MyFICO Loan Savings Calculator. I plugged in these numbers: $25,000 new car loan, 48 month term, credit score 690-719, in the state of Illinois.
Here are the results:
Auto Loan Interest Rates
One of the great things about the Loan Savings Calculator is that it shows you actual example interest rates based on different credit score ranges. In the case of a 695 credit score, your approximate interest rate on this example loan is 5.4%.
Remember – These images are from the $25,000 new car loan, 48 month term, credit score 690-719, in the state of Illinois example loan calculation I mentioned above. The interest rates appear to be pretty accurate.
Ok, now let’s take a closer look:
According to these numbers, a 695 credit score is pretty close to the top tier. But there’s still a big difference between “total interest paid” for a 695 credit score vs a 720+ credit score – in this case over $800.
That means, for this example, you would end up paying $800 MORE in interest over the life of this loan, just because your credit score was 695 instead of over 720.
Another screenshot from that same calculation:
This section tells you what would happen if your score was higher or lower, and how that effects the cost of the loan. If that doesn’t emphasize the importance of taking care of your credit, I don’t know what would!
Check Auto Loan Rates & Apply Online
BankRate is a great source to check for auto loan rates and apply online. They let you search and compare loans from the top banks, to find the best deal. Check out this screenshot from BankRate:
BankRate Auto Loan Rates page lets you compare auto loans from multiple lenders in your area. You can sort by lender, interest rate, APR, etc. – and apply online.
Summary: What Does All This Mean?
The loan savings calculator I reference above is a great tool, not only for calculating the cost of a loan, but learning how drastically your credit score can affect the cost of the loan.
I think the takeaway from this should be that most people can obtain an auto loan, but only those with credit scores of 720+ will receive the best interest rates. And those with lower credit scores will have to pay dearly for not having a higher score.
While we can’t tell you for sure if you will be approved or denied for any mortgage, here’s an overview of what you might be able to except when applying for a mortgage (home loan) with a credit score in the 650-699 range (Fair credit).
Applying For a Mortgage with a Fair Credit Score (650-699)
Your credit score can make a huge difference when you’re buying a home. Today, lenders are more strict than they were before the subprime mortgage crisis of 2008. Having a good credit score is perhaps more important now, than ever before.
The MyFICO Loan Savings Calculator does a great job illustrating how your credit score can impact the interest you pay on a loan. The difference in interest paid is astonishing for a fair score vs an excellent score!
As you can see in the screenshot above, I chose a 30-year fixed loan, in the state of Illinois, for an amount of $200,000, and a credit score between 680-699.
If you look closely, it says “If your score changes to 760-850, you could save an extra $16,000”.
That’s a significant savings just for having an “Excellent” credit score vs a “Fair” credit score before applying for your mortgage!
This tool is the perfect way to illustrate how important a “Good” credit score is before applying for a mortgage.
FHA Home Loan
Pass This Score Should Qualify For an FHA Loan
Here are credit score minimums as stated by FHA:
- Credit score at or above 580: Eligible for 3.5% down payment
- Credit score of 500-579: Must put 10% down, but still eligible
- Credit score below 500: Not eligible for FHA financing
From BankRate: “In 2016, the average credit score for an FHA homebuyer was around 686, while the average conventional homebuyer had a credit score around 753”.
FHA Loan Low Down Payment
Pass This Score Should Qualify For FHA Loan Low Down Payment
According to FHA.com: “For those interested in applying for an FHA loan, applicants are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent”.
Pass This Score Should Qualify For a Conventional Mortgage
While there’s no standard minimum credit score set in stone across all lenders, most lenders backed by Fannie Mae or Freddie Mac require a minimum credit score of 620 for a conventional mortgage.
From TheMortgageReports: “Conventional loans: These are backed by Fannie Mae and Freddie Mac and offered by most lenders in the country. A 620 minimum score is required, with some lenders requiring as high as 620-640 for conventional financing. For those with a small down payment, FHA is usually more cost effective”.
How Your Credit Score Affects Mortgage Rates
According to BankRate, Borrowers with high credit scores tend to get lower interest rates on mortgages than borrowers with low credit scores.
- A credit score of 740 or higher qualifies for the best interest rates from most lenders.
- It is difficult, but possible, to get a mortgage with a credit score under 620.
- The difference between the best and worst rates can vary by a full percentage point and a half.
Check Mortgage Rates and Apply Online
There are many websites to check mortgage rates and apply, but BankRate Mortgage is my top pick. Here’s a screenshot of their Mortgage Rates page:
With BankRate, you can check rates, find and compare home loan rate (new purchase or refinance), and start your application online or over the phone. Be sure to check them out if you’re in the market for a mortgage, or just checking rates.
Summary: Your Mortgage Approval Odds
While there’s no way for us to tell whether you will be approved or denied for home loan you are seeking, these are good guidelines to go by if you are seeking a mortgage in the near future.
Conventional Home Loan: Try to make sure your credit score is at least 620.
FHA Loan: Try to make sure your credit score is above 580 for the lowest possible down payment.
Keep in mind: The higher your score is, the lower interest rates you can expect. Which means more money saved on interest.
Why 725+ Should Be Your Goal
I always say that 725 or higher is the score to shoot for. It gives you a little wiggle room before you’re too close to dropping below 700 again.
Your credit score is constantly changing due to many factors such as your credit card balances, hard inquiries, new credit accounts, and so on.
So having a score of 725 gives you a bit of room so you won’t easily drop below 700 without even realizing it.
How Is A Credit Score Calculated?
While exact details of how your credit score is calculated is an industry secret, we do know that credit scores are formulated using many different pieces of data from your credit report.
This data is grouped into five categories as shown below. The percentage to the right of each one indicates how important it is in determining your credit score.
- Payment History – 35% – This is typically the first thing a potential lender will want to know. Have you paid your past accounts on time? Have you missed any payments?
- Total Amounts Owed – 30% – How much you owe on each of your credit accounts. Higher amounts does not necessarily mean you are high risk, other factors are considered as well.
- Length of Credit History – 15% – Generally a longer credit history will yield higher credit scores. But that’s not always the case, it also depends on how often you use your credit, and how responsibly you manage your debt.
- Types of Credit in Use – 10% – Credit score providers will consider the mix of credit accounts you have, such as credit cards, retail accounts, auto loans, mortgages etc.
- New Credit – 10% – Lenders want to know if you’ve recently been applying for many credit accounts in a short period of time. That can often represent a greater risk to the lender.
How To Start Improving Your Credit Score?
Start with #1: As you can see above, your payment history is the biggest factor affecting your credit score. Because of this, paying your bills on time is the single most important thing you can do for your credit score.
If you have any past due accounts, pay them right away to bring them current. Continue to make your payments on time.
Don’t forget #2: Total amounts owed is the second biggest factor affecting your credit score. This takes all debt into account, however, your credit cards are probably going to be your highest priority.
Keep them paid down to no more than 25% credit utilization. This means to make sure you only use 25% or less of your total credit line on all credit card accounts in your name.
Don’t Close Your Unused Credit Card Accounts!
Closing your unused credit card accounts lowers your credit utilization ratio. This is a bad thing for your credit score. As long as your accounts are in good standing, keep them open.
If you’re too tempted to use them when you know you shouldn’t, take some scissors to those suckers – problem solved! Just keep one or two cards that you actually use, and use them wisely.
Sometimes the culprit is an error (or errors) on your credit report. Have you checked over your report thoroughly to make sure your creditors have reported your account and payment information correctly?
For example, maybe XYZ Auto Finance Company erroneously reported that you had missed a payment a couple months ago?
Errors do happen, be sure to check your report for any errors and get them fixed ASAP, and get your credit score back on track.
No errors, now what?
If there are no errors on your credit report, and no bankruptcy, repo etc., then what about your credit card balances? For the best credit score possible, keep your credit card balances low.
What’s considered low? Keeping your CC balances 25% or less of your total credit line is a good guideline.
Keep Your Credit Card Balances Low
As I mentioned above, keep your credit utilization ratio below 25%. Anything higher than that can really drag down your credit score.
For example we’ll say you have two credit cards, one has a $3,000 credit limit, the other has a $5,000 limit. Your total “credit line” or “credit limit” on your credit cards would then be $8,000.
If you carry a total balance on both cards of $4,000, your total balance would be occupying 50% of your total credit limit (or 50% credit utilization ratio), this is not good for your credit score.
If this sounds like your situation, work on paying down your credit card balances as much as possible.
Can’t figure it out?
If you cannot figure out why your credit score is low, it could be because you have too much debt such as personal loans, student loans etc. Or it could simply be that your credit history is too short.
In any event, our credit score estimator may be able to help you figure out what is bringing down your credit score, give it a try.
My score shot from 666 to 777. Learn How in 3 Steps.