Waiting for a loan approval can be a roller coaster of an experience. People take out loans for many different reasons, and often are prompted by significant purchases like buying a car or purchasing a first home. Unfortunately, many borrowers begin the loan application process without all of the information they should have.
Most people know how much debt they have -- or how much money they have in the bank. But what they don’t know is the impact their financial behavior has on their credit score, which will likely determine whether a loan application gets approved or denied.
What happens if your score is 620—right at the center of the “Fair” range of FICO scores? Is it good or bad? That depends on what you’re applying for.
In general, it’s crucial to understand where you stand with regard to your credit score, and which financial products it qualifies you for. Knowing how lenders interpret your score helps you gain more control over your financial life. That’s what this report focuses on.
| FICO Score Range | Label | Percentage of Americans in that range |
|---|---|---|
| FICO Score Range 800-850 | Label Exceptional | Percentage of Amerians in that range 21% |
| FICO Score Range 740-799 | Label Very Good | Percentage of Amerians in that range 25% |
| FICO Score Range 670-739 | Label Good | Percentage of Amerians in that range 21% |
| FICO Score Range 580-669 | Label Fair | Percentage of Amerians in that range 17% |
| FICO Score Range 300-579 | Label Very Poor | Percentage of Amerians in that range 16% |
Source: Experian [1] Experian: 620 Credit Score: Is it Good or Bad? https://www.experian.com/blogs/ask-experian/credit-education/score-basics/620-credit-score/
Numerically, a credit score of 620 is the middle of the middle. The mistake many potential borrowers make is looking at a numerical range and think that the middle equals “OK.” In actuality, the range of 580 to 669 is the second lowest rung on the credit score ladder, just above scores in the “Poor” range.
Also, different lenders perceive various scores in different ways. For example, auto lenders consider a score of 620 to be in a category they refer to as “Non-Prime.” Scores in this category aren’t eligible for the best interest rates, but also don’t fall into either of their two “Subprime” categories.
By contrast, mortgage lenders clearly differentiate between a score range that qualifies for more competitive mortgage rates and scores within their riskier subprime category. A score of 620 is just over that dividing line, and will qualify most borrowers for a conventional mortgage. Most lenders require a credit score between 620 and 640 to qualify for a conventional mortgage. [2] Low Credit Score Home Buyers In 2021 Could Qualify Because of this new FHA Policy https://mymortgageinsider.com/new-fha-policy-for-low-credit-home-buyers-7494/ That’s a big step, as the only mortgages available to borrowers with a lower score are FHA loans.
Credit card issuers take a similar approach. With a score of 620 or below, people can obtain unsecured credit cards, but the interest rates are higher, the limits are lower, and the perks often advertised in commercials such as zero percent financing for the first year, travel and hotel points, or no annual fee are unavailable. Those options become more accessible with a score of above 620.
A FICO score of 620 is right on the border of qualifying for products such as conventional loans. Installment loans and lines of credit may be more accessible if your score has improved to 620, but interest rates won’t become competitive until your score gets closer to the “Good” range. [4] 620 Credit Score https://bettercreditblog.org/620-credit-score/
How to Build Credit When You Have None
Building credit from scratch can be a lot easier when you understand where to start and which mistakes to avoid.
Download our guideSome individuals don’t learn about their FICO score’s impact until they apply for a loan. Don’t put yourself in that position. Instead, take the time to learn how your score affects both your finances and future life choices. This may seem like a daunting prospect, but the truth is that you have more control over your score than you may think.
With a credit score of 620, your credit applications won’t necessarily be rejected. However, getting that loan could cost you more than it would cost someone with a better credit score. Many factors are considered when evaluating a loan application. One of those factors is the kind of loan you’re trying to obtain. Being above or below 620 can mean a difference of several percentage points of interest, translating to thousands of dollars.
| Credit Score | Rating | % of People | Interest Rate(Personal Loan) | Impact |
|---|---|---|---|---|
| Credit Score 300-579 | Rating Very Poor | % of People 16% | Interest Rate(Personal Loan) 30.25% | Impact Applicants may be forced to pay a deposit or fee, or may not be approved for credit at all. |
| Credit Score 580-669 | Rating Fair | % of People 17% | Interest Rate(Personal Loan) 18.85% | Impact People in this number range are generally classified as subprime borrowers. That denotes a less-than-desirable credit standing. |
| Credit Score 670-739 | Rating Good | % of People 21% | Interest Rate(Personal Loan) 14.5% | Impact The percentage of borrowers likely to become seriously delinquent in the future is only 8 percent in this range. |
| Credit Score 740-799 | Rating Very Good | % of People 25% | Interest Rate(Personal Loan) 11.4% | Impact Applicants here tend to get better than average interest rates from lenders. |
| Credit Score 800-850 | Rating Exceptional | % of People 21% | Interest Rate(Personal Loan) 11.4% | Impact People in this number range gain eligibility to the most favorable interest rates. |
Source: Experian [5] Experian: What is a Fair Credit Score? https://www.experian.com/blogs/ask-experian/what-is-a-fair-credit-score/, [3] Average Loan Interest Rates: Car, Home, Student, Small Business, and Personal Loans https://www.valuepenguin.com/loans/average-loan-interest-rates
When shopping for a car, your moment of truth will usually take place while you’re negotiating your car loan’s terms in the dealer’s finance office. With a credit score below 700, the dealership may ask additional questions about your finances. [6] What Credit Score Do You Need to Buy a Car? https://www.nerdwallet.com/article/finance/credit-score-needed-to-buy-car What this means is simple: If you are one of the many Americans with a credit score of 620, you can expect closer scrutiny into your score.
It’s nothing personal - it’s a normal part of a lender’s due diligence in deciding whether to approve a loan application. Yet those questions don’t necessarily mean that your application will be rejected or that you’ll only qualify for a sky-high interest rate. Both credit scores and loan decisions may reflect numerous metrics. Rarely does a single blemish completely torpedo your credit score.
Good news - you can get an auto loan with a score of 620. The Consumer Financial Protection Bureau defines a subprime borrower as anyone with a score below 620. [7] CFPB - Borrower risk profiles https://www.consumerfinance.gov/data-research/consumer-credit-trends/student-loans/borrower-risk-profiles/Borrowers just above this level will not get prime interest rates, but they won’t get subprime either.
| FICO® SCORE RANGE | 60-MONTH NEW AUTO LOAN APR | 48-MONTH NEW AUTO LOAN APR | 48-MONTH USED AUTO LOAN APR |
|---|---|---|---|
| 720-850 | 4.52% | 4.48% | 5.34% |
| 690-719 | 5.86% | 5.82% | 7.02% |
| 660-689 | 8.13% | 8.08% | 8.78% |
| 620-659 | 11.22% | 11.15% | 10.93% |
| 590-619 | 15.90% | 15.82% | 17.02% |
| 500-589 | 17.09% | 17.01% | 17.90% |
Source: CFPB [7] CFPB - Borrower risk profiles https://www.consumerfinance.gov/data-research/consumer-credit-trends/student-loans/borrower-risk-profiles/
| Mortgage rates as of May 3, 2021 - 30 Year Fixed, $250k Principal Amount | ||
|---|---|---|
| FICO score | APR | Monthly payment |
| 760-850 | 2.668% | $1,010 |
| 700-759 | 2.89% | $1,039 |
| 680-699 | 3.067% | $1,063 |
| 660-679 | 3.281% | $1,092 |
| 640-659 | 3.711% | $1,152 |
| 620-639 | 4.257% | $1,231 |
Self.inc: Average FICO Credit Score in America [8] Average FICO Credit Score in America https://www.self.inc/info/average-credit-score-in-america/#impact
Most mortgage lenders consider a FICO score below 620 to be subprime. [8] Average FICO Credit Score in America https://www.self.inc/info/average-credit-score-in-america/#impact Unless you’re willing to pay a considerably higher interest rate, your options may well be somewhat limited. Statistically speaking, lenders know that lower credit scores correlate with greater default risk. Those higher interest rates help protect lenders against that greater risk.
In most cases, conventional mortgage applications require a minimum credit score of at least 620. Lower scores will generally prevent you from obtaining a conventional mortgage or VA interest rate. Instead, you’ll be relegated to a Federal Housing Authority or FHA loan, which can be accessible for people with credit scores of 500, if they can also provide a large down payment.
For conventional mortgages and Veterans Administration or VA mortgages, 620 is the minimum acceptable score. Depending on the mortgage lender’s specific requirements, you can expect to pay a varying down payment and may also need to obtain mortgage insurance. Both of these can be affected by how high or low your credit score is.
A score in the Very Poor or Fair ranges doesn’t simply affect homebuyers. If you apply to rent an apartment, you’ll also find property management firms and landlords will usually run a credit check to screen potential tenants. You’ll find a wide range of policies on acceptable scores in the rental market, but generally, for potential tenants, the higher your score is, the better your results will be. A score below the “Good” range may well be subject to higher deposit requirements, a co-signer, or additional scrutiny.
If you do manage to obtain a mortgage or an apartment rental approval, despite your credit hiccups, you may yet face additional challenges. Your property or renter’s insurance provider will also check your credit when you apply for a policy to protect your investment. Applicants with less-than-perfect credit may find themselves paying higher premiums.
The most effective way to improve your credit score is to establish a positive history of payment.While a credit score is based on several criteria, your payment history is one of the primary factors, accounting for as much 35 percent of your credit score. [4] 620 Credit Score https://bettercreditblog.org/620-credit-score/
When you pay consistently and promptly over time, and pay off your balances as soon as possible, your credit score will improve.
Parents often use this tactic to help their children establish credit. When an existing card holder places another individual on their account as an authorized user, the new user then gets their own card, while their card activity is included on the account holder’s statement. If a family member or loved one is willing to do this for you, it’s a great way to establish good credit quickly, provided payments are made consistently and on-time.
Your credit utilization rate is a metric that represents how much of your available credit you use, calculated as a percentage. Ideally, the utilization rate should be about 30 percent of your available credit at any given time.
In order to lower your credit utilization rate, a three-prong approach is most effective. First, pay down your balances on as many open accounts as possible. This lowers the amount of credit that you have in use. Second, apply for an increase in your credit limit. This results in a ratio of used credit versus available credit that leans more strongly in your favor. Third, keep unused credit card accounts open instead of closing them, which cuts off a line of credit with an available limit and weakens your credit utilization rate. [10] Experian: How to Improve Your Credit Score https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/
When you can’t get approved for conventional credit cards thanks to blemishes on your credit report, consider secured credit cards. With a secured card, you’ll put down a deposit that determines your spending limit, often as low as a few hundred dollars.
The down payment becomes the security for the credit you are being extended. As you use the card and make on-time payments, the issuer reports your positive history to the credit bureaus, which in turn improves your credit score.
Learn about Self's secured credit card for building credit.
Human beings can make mistakes—even the ones who work at the credit reporting agencies. That’s why it’s so important to regularly review your credit report to verify the data and historical information are correct. Correcting the mistakes you made that dinged your credit score is hard enough. Don’t let mistakes you didn’t make damage your score further.
If you don’t own a home, but want to demonstrate your ability to make timely payments each month, ask your landlord to report your rent payment history to the three credit bureaus (Equifax, Experian, and TransUnion). [4] 620 Credit Score https://bettercreditblog.org/620-credit-score/
This may involve an extra fee, but it can have a significant effect on your score. A positive history of making consistent, on-time payments such as rent makes up more than 30 percent of your credit score.
Using these strategies will help improve your credit score, but it will take about three to six months to start seeing results. [13] What Can You Do With a 620 Credit Score? https://peerfinance101.com/620-credit-score/ This is because missed payments will stay on your credit report for three to five years. Without a successful dispute of a negative item on your report, those blemishes are not easily erased.
With a credit score of 620, you could qualify for a conventional mortgage.However, your options may be limited. At this level, or even with a higher score in the “Fair” range, your mortgage will likely be a federally-insured loan, backed by Fannie Mae or Freddie Mac.
If you have a credit score in the “Fair” range and can afford the down payment, it might be a good idea to apply for that mortgage now while interest rates are quite low. With a positive payment history on an approved mortgage and with some equity built up over time, you could qualify to refinance at an even lower rate at a future point in time.
An important thing to consider is how mortgage lenders apply the information they receive from the credit bureaus to their decision on your loan application. Mortgage lenders pull information from all three credit bureaus, then use the “middle” score in their decision.
Each bureau will return a different score because they have slightly different information about you and use varying scoring models. So, for example, if the bureaus return scores of 615, 620, and 635, the mortgage lender will use 620 as the score they will apply to your loan application. [9] What credit score do you need to buy a house? Your guide to credit and mortgages https://themortgagereports.com/18621/mortgage-credit-score-minimum-gina-pogol
In addition to your credit score, lenders will consider the percentage of your income that goes toward paying down debt. This is your debt-to-income ratio, and for loan applications, the lower the better. It will be more difficult to secure a loan if the income you will use to pay a mortgage exceeds 28 percent of your gross monthly income. [11] Experian: Why Would A Mortgage Get Denied? https://www.experian.com/blogs/ask-experian/why-would-a-mortgage-get-denied/
Like mortgages, car loans are secured loans, where the property you are purchasing serves as collateral for the loan used to finance that purchase. It’s much easier to qualify for a car loan than for a mortgage because auto dealers and the banks and finance companies they work with are eager to offer financing to consumers—even those with abysmal credit scores. These eager lenders air commercials that loudly announce that if you can push, pull, or drag that trade-in to the dealership, you can qualify for credit—even if you make as little as $300 a month.
However, this financing comes with some caveats. First, with a credit score of 620 your interest rate will fall somewhere around 11 percent. [7] CFPB - Borrower risk profiles https://www.consumerfinance.gov/data-research/consumer-credit-trends/student-loans/borrower-risk-profiles/ So be sure to factor that in before going to the dealership.
When financing an automobile purchase, focus on the loan term and not just the monthly payment amount. That payment is certainly important, but can be misleading. Car dealers emphasize monthly payment amounts in an effort to put a reasonable-sounding number in front of a prospective buyer and persuade them to buy.
Auto loan terms can extend out as far as 96 months, which constitutes a large chunk of the useful life of the average car. If you have worked hard to improve your credit score, you could unwittingly undo all that effort by locking yourself into a long-term loan that might even outlive the vehicle.
You can definitely get approved for a credit card with a credit score of 620. However, you probably won’t be able to qualify for credit cards that do not require an initial deposit, and may not qualify for some cards that offer perks such as cash back, airline and hotel points, zero percent interest, and no annual fee.
At the 620 credit score level, you’re not eligible for the cards that have perks, points, rewards, and cash-back, but you’re also not restricted to secured cards only. Credit issuers have several unsecured cards available that are no-frills lines of credit specifically meant to help users rebuild their credit scores.
There is one important caveat with credit cards: Only apply for credit if you are reasonably certain you will be approved. Every application for credit, regardless of approval status, causes a small (though temporary) drop in your credit score. Applying for credit too often and too frequently can result in a constantly declining score, from which it’ll take a longer amount of time to recover. Choose your cards carefully.
Attaining a perfect credit score is not impossible. Learn what perfect credit is and get answers to all of your credit related questions with Self Financial.
Discover the minimum credit score needed when buying a house through conventional, FHA, VA, USDA and jumbo loans.
It is possible to buy a house with bad credit, but there are a few factors that mortgage lenders will look at.
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