5 Ways a Credit Score of 650 or Below is Costing You

Your credit score is a three-digit number that provides insight into your financial trustworthiness and repayment history. Lenders use it to evaluate the risk of lending money to you. The higher your score, the more likely you are to be approved for credit and receive better terms. A score of 650 or below is considered poor and can cost you more than you may realize.

Having a low credit score can lead to higher costs and limited opportunities in several key areas of life. Today, you will learn five ways a score of 650 or below may be negatively impacting your finances.

#1 Higher interest rates on loans and credit cards

Most lenders consider borrowers with low credit scores as higher-risk applicants. To compensate for this increased risk, lenders will charge higher interest rates. This means you pay more over the lifetime of a loan.

For example, on a $20,000, 5-year car loan, a borrower with a 750 credit score may pay around 4% interest, costing $1,609 in interest over the loan term. A borrower with a 650 score may pay 8% interest, costing $3,139 in interest – nearly twice as much!

The same principle applies to credit cards. Issuers will charge higher interest rates to riskier borrowers. A low credit score could mean paying 18% interest or more on your credit card balances versus 12-15% for those with very good credit. This quickly adds up when carrying a revolving balance month-to-month.

Key Takeaway: Lower credit scores can lead to higher interest costs on your debts, costing you thousands of extra dollars over time.

#2 Difficulty securing housing

Landlords and property managers frequently check applicant credit scores to help screen prospective tenants. They view your creditworthiness as an indication of how likely you are to pay rent reliably each month.

If your credit score is 650 or lower, you are more likely to have your rental application denied. Even if approved, you may be asked to pay a larger security deposit.

Without good credit or extra funds for a larger deposit, finding a place to rent can be very challenging. A low score could hamper your ability to secure housing.

Key Takeaway: A low credit score can make it harder to rent or require you to pay a higher deposit, reducing your monthly cash flow. This is an added cost that could be avoided with a higher credit score.

#3 Increased insurance premiums

Insurers are in the business of evaluating risk. Similar to lenders, they view customers with lower credit scores as higher risk and more likely to file claims. As a result, people with poor credit often pay more for insurance.

Your personal credit score may be checked when applying for auto, home, renters, or life insurance. Scores below 650 can lead to substantially higher monthly premiums on these important safeguards.

Over several years, those with very good credit may save hundreds of dollars annually compared to those with poor credit. Maintaining a solid score helps keep insurance costs in check.

Key Takeaway: Higher insurance premiums can be an added expense for those with lower credit scores, costing hundreds of dollars more each year. It pays to improve your score for potential savings on insurance costs.

#4 Limited access to the best credit cards

Credit card companies use customer credit scores to determine eligibility for the most competitive products. These desirable cards offer robust rewards programs, introductory 0% interest periods, generous sign-up bonuses, and additional perks.

To qualify, you typically need very good credit – often 720 or above. A credit score of 650 or lower makes you much less likely to be approved for the most sought-after credit cards.

Without access to these top rewards cards, you may be missing out on thousands of dollars in points, miles, and cash back. Improving your credit expands your options in the future.

Key Takeaway: A lower credit score can limit your access to the best credit card offers, potentially costing you valuable rewards and perks.

#5 Potential employment challenges

Some employers, especially financial institutions and government entities, routinely check a job candidate’s credit report. They view your credit history as reflective of your responsibility, integrity, and decision-making abilities.

Poor credit raises questions about these desired traits in an employee. Right or wrong, a low score could negatively impact your job application.

While a credit check is not universal, a poor score may limit opportunities, especially for higher-level positions that involve financial responsibility. Avoid putting yourself at a disadvantage by maintaining good credit.

Key Takeaway: A low credit score can hinder job opportunities and potentially impact your career growth. Keeping a good score helps safeguard against potential employment challenges in the future.

Final thoughts

Your credit score has a major influence on your financial life. A score of 650 or lower will cost you more through higher interest rates, insurance premiums, and limited opportunities. Improving your credit opens doors to better loan terms, quality housing, competitive credit cards, and greater employment potential.

Review your current credit reports and scores. Identify any errors needing correction and pay down balances. Most importantly, make on-time payments going forward. With diligence and patience, you can improve your credit score over time. Invest in your financial future by taking steps today to increase your creditworthiness.