Overall 635 credit score is not a good credit score. It ranks well below the fair category, and can have dramatic impacts on your finances: particularly on not getting a loan, and paying a high interest rate on your loans.
Can a 635 credit score secure a home loan?
Our research shows that a 635 FICO score will have a difficult time securing a mortgage. The approval will also be for a lower principle rate and a higher interest rate. Your lender will also typically require a significant down payment.
More on Credit Scores
Credit scores have traditionally been something close to incomprehensible to the average person. The credit industry spent years shrouded in mystery and fraught with vague standards and partially factual bits of information. Consumers knew little to nothing about the number, which held so much weight and wielded so much influence.
Recently various consumer advocates have pulled back the veil on the industry and credit scores. Some companies have appeared on the horizon, each one offering to supply free credit scores to consumers. However, getting a number with little or no background explanation or qualifying information does very little to help the average consumer and often adds to the confusion. This practice leaves consumers looking at a random number and asking themselves things like, “Is 635 a Good Credit Score? Is 635 a Bad Credit Score?” or even “What Does a 635 FICO Score Mean?” Understanding that number, what it affects, and how it is calculated is crucial to gaining control of finances and not as mysterious as many believe.
What is an average credit score?
The question seems to be straight forward, but the score considered standard can vary based on a few factors. According to 2016 data, the two most widely used credit reporting agencies are FICO and Vantage. Both use a scale that runs from 300-850; each has a different number as the average credit score. FICO lists a credit score of 695 as average, and Vantage says a 671 is the average credit score. Additionally, other factors affect credit scores, and an individual score can vary across the many reporting agencies.
As a factor influencing an individual credit score, age follows a predictable pattern. The twenty to thirty-year-old demographic has the lowest credit scores because these people have had the least amount of time to build a credit history. The model shows an increase of credit scores, which is directly proportionate to the increase of age. In the seventy years old and above demographic, fifty-five percent of borrowers have a credit score above 780.
Higher income does not automatically increase an individual credit score, but having a greater income tends to lead to a lower rate of credit utilization. In these cases, more money is available, so a borrower does not need to use the credit, which is available. The amount of credit offered to an individual borrower is income based.
Where a borrower lives follows the pattern of income as persons with similar income levels tend to live in the same geographical areas.
Using the example of the 635 FICO Score, this is slightly below average and falls into the delineation of fair. This leads to the definition of the term credit fair. Lenders view a potential borrower with a fair credit rating as a moderate credit risk. The interest rates offered to borrowers with this score are higher than what borrowers with higher scores see, but loans are still available to these borrowers.
How is a credit score calculated?
There are five main factors, which credit agencies use to calculate an individual’s credit score. The elements have different degrees of importance. The factors borrowers control most have the greatest influence on the credit score.
PAYMENT HISTORY: 35%
Creditors give the highest degree of relevance to an individual’s payment history when calculating a credit score.A credit score of 635 may seem randomly assigned, but this is not the case. The borrower’s long-term behavior predicts future behavior based on the belief that how a borrower acted in their past financial activities will predict the borrower’s future actions. If a payment history contains late payments or defaulted loans, the type of debt and the amount of debt also are factors. Ultimately, defaulting on a mortgage of tens of thousands of dollars will do more damage to a credit score than defaulting on a five-hundred dollar credit card bill. However, all late payments and defaults will lower a borrower’s credit score.
CREDIT UTILIZATION: 30%
Lenders look at how much available credit the borrower uses at any given time. The concern here is that a borrower who routinely maxes out credit cards, or even comes close to the allotted credit limit, is not able to use credit responsibly. Another point of concern is that a borrower who consistently is accruing more debt is a borrower who is in financial a crisis and therefore not a good credit risk.
LENGTH OF CREDIT HISTORY: 15%
Creditors see a borrower with a lengthy credit history with few or no late payments as a good credit risk. As in the other categories, the assumption is that an individual’s past behavior predicts the future behavior. A lender who sees a borrower’s short and uneven credit history also sees a greater risk of default.
NEW CREDIT: 10%
Individuals should be cautious when seeking new credit card accounts or lines of credit. A sudden increase of credit applications raises concerns of a financial crisis and can negatively affect a credit score.
MIX OF CREDIT: 10%
Lenders see the borrowers who have a mixture of revolving credit (credit cards) and installment credit (mortgages and student loans) as adept at credit management. Historically balancing a few types of credit means a potential borrower is a good risk.
It is clear that paying bills on time and not carrying a large credit balance are two keys to a good credit score as together those factors make up two-thirds of a credit rating. With an understanding of what goes into a credit score, a borrower may wonder how to build the credit score. Once again, revisiting the 635 Credit Score, a common question is how can the credit score be raised and how quickly can the credit score be raised. It takes some time to build up a credit rating, and it will not happen overnight. Following a few tips can help improve a credit score.
Ways to improve credit scores
OPEN A LINE OF CREDIT OR SECURE A LOAN
It seems almost counterintuitive to improve credit by getting credit. However, the best way to prove credit worthiness is by contentiously repaying debts. A credit history holds thirty percent of credit scores weight because it gives creditors historical data pointing to the fact that an individual is a good risk. If a potential borrower is young or is in the process of rebuilding credit becoming an authorized user of a relative or close friend’s credit card is one way to prove creditworthiness. Another way is to get a secured credit card and faithfully make payments.
MANAGE CREDIT AND LOANS RESPONSIBLY
A credit score is simply a show of confidence in the ability to repay the loan or debt. Responsible actions will bring a good credit score. On time, payments are a key to raising and maintaining a healthy credit score. This point is never overstated; even a single missed payment can lower a credit rating. Show the ability to exercise restraint in the area of credit cards by only using a small percentage of available credit. To raise a credit score, use no more than thirty percent of the credit offered. Some experts advise using even lower amounts such as ten or twenty percent of available credit.
NUMBER OF OPEN ACCOUNTS
Once again, it seems counterintuitive to have some credit card accounts open. Borrowers often think closing a few accounts will improve their credit score. The fact is closing accounts, in good standing will harm a credit rating. The reasoning behind this goes back to the notion of low credit utilization. Closing accounts will take away from the total amount of available credit. If a borrower diminishes the available credit, then the amount used is a greater overall percentage. Additionally, if an older account is closed the negative impact is higher than if the account closed was a new account. Several open accounts, which are up to date, are a good way to improve a credit score.
Getting a free credit score is a helpful way to build credit or maintain good credit. There are several different credit reporting agencies, which operate, on various scales. Checking more than one company’s report is important. These are the most used reporting agencies with their credit ranges. It is easy to become confused based on their differences.
- FICO Score: 300-850
- VantageScore 3.0: 300–850
- VantageScore (versions 1.0 and 2.0): 501–990
- PLUS Score: 330-830
- TransRisk Score: 100-900
- Equifax Credit Score: 280–850
This is why it is important to obtain a credit REPORT and not only a credit score. Understanding a 635 Credit Score takes more information than a score provides. There are several companies, which offer free credit reports, and many that offer free credit scores, be sure the companies do not require credit card information, as this is a sure sign that the score or report is not free.
Federal law allows individuals to get a free copy of a credit report, from each credit reporting company, every 12 months. This allows borrowers to see exactly what is affecting credit scores and ensure that the information on credit reports is correct and up to date. The United States Federal Government authorized Annual Credit report.com to issue free credit reports, and there are other companies, which offer legitimately free full credit reports. Take the time to study the credit reports and be sure that all accounts are recognizable, and none is strange or unfamiliar, as this is a sign of identity theft. Verify the information on the credit report is correct. Contact the company that issued the account or the credit reporting company that issued the report if there are discrepancies.
Credit scores are no longer mysterious and unintelligible entities. With time and patience, understanding credit scores, their meanings, and repercussions are within the grasp of everyone.