How Your 640 Credit Score is Holding You Back

How long does it take to repair a 640 credit score and what kind of interest rates can you expect?

We’ve been talking a lot about specific credit scores lately, how many people have a certain FICO score and what is good credit. A 640 credit score is one of those scores that seems to catch a lot of people.

I don’t know if the FICO system gets stuck around 640 or if it’s just an easy, even number but I hear from a lot of people with a 640 FICO.

Let me answer a few of the most common questions first and then we’ll go into detail on what this credit score means to you.

A low credit score may not be your fault if you just don’t have much credit history but it’s still something you’ll want to fix if you want affordable rates
A 640 FICO isn’t bad credit but it will lock you out of getting the best interest rates or even approved for a loan at all
From talking with borrowers, it takes between six- to 18-months to increase a credit score the 40 points to become a ‘prime’ borrower

Why Do I Have a 640 Credit Score?

So, a 640 credit score isn’t necessarily bad credit as we’ll see in the next section but it isn’t a good credit score either.

The most important first step you can take when looking at your credit score is to understand how you got there. Believe me, I’ve been there.

I had a stellar credit score in my early 20s with a FICO almost into the 800s and I could get just about any loan I wanted. Then I started missing loan payments on rental properties and destroyed my credit. I couldn’t get a loan for a stick of gum.

Now you might not have done anything. You credit score could be low just because you don’t have much credit history yet. That’s the problem for a lot of millennial borrowers.

It’s actually an important difference because whether bad marks ruined your score or you just don’t have much on your credit report is going to mean different things when trying to boost your credit score. It’s also going to be important in the time it takes to increase your FICO.

Is it Still Good to Have 640 Credit Score?

Having a 640 credit score is still equitable but even if a lot of people have fair scores, it can still be difficult to get approved for credit without huge fees and flying interest rates. When applying for a new loan, a 640 credit score could not be enough to acquire a good interest rate. But perhaps, you wouldn’t mind asking for opinions of others who have similar cases to see what works best and easier.

With a 640 credit score, you can be considered to have a fair credit and you can still find lenders that will help you finance your new car or a home, but the interest rates you might be receiving may not be as favorable as those who were able to maintain excellent credit standing. Well, on the positive side, there are a lot of strategies for improving your 640 credit score. The most important first step is understanding how to compute and analyze your credit score.

Is a 640 FICO Score Considered Bad Credit?

Whether a 640 FICO score is considered bad credit depends on who you ask. Ask a loan officer at a traditional bank and they’ll try not to offend you with saying ‘bad credit’ but they aren’t going to approve you for a loan either.

That’s because they can’t. Most banks have strict requirements for credit scores so they can sell the loans to investors. Borrowers need a credit score of 680 or higher to qualify for certain loan guarantee programs, something that makes them more valuable to investors.

A credit score above 680 is called ‘prime’ and anything below is sub-prime.

A sub-prime credit score isn’t necessarily bad credit though and you’re not alone in the situation. One-in-three Americans is below a 650 credit score and the average score for people 29 and younger is well below a 640 FICO.

How Many People Have a 640 Credit Score?

There are lots of lenders than can make loans to sub-prime lenders though the rates will usually be higher. Most personal loan sites offer loans all the way down to 580 FICO and I’ve seen auto loans made on scores into the 400 range.

Just because you can get a loan with a 640 credit score doesn’t mean you should.

While the rate on a sub-prime personal loan is going to be way below what you pay on a cash advance, it’s still going to cost you thousands of dollars in interest by the time you pay it off.

Taking a few months to boost your credit score those extra 40 points can mean a big difference in your interest rates.

How Long Does It Take to Fix a 640 Credit Score?

The difference between a lack of credit history and bad marks on your credit report are important to how you increase your score.

It can take up to 10 years to fix your credit score after a personal bankruptcy and even up to three years after being late on your mortgage. FICO estimates that your credit score falls between 80 and 100 points if you’re more than 30-days late on your mortgage.

Other bad marks on your credit report can be even worse with a drop of between 140 to 250 points after a foreclosure or bankruptcy. The difference in how far your credit score drops usually depends on how high your score was in the first place. The higher they are, the farther they have to drop so protect those high credit scores.

How Long to Fix Your Credit Score?

Either way, even a missed payment can easily lower a pristine score below 640 FICO. Repairing your credit is going to mean getting as many bad marks off your report and consolidating your high-rate debt into a lower rate personal loan.

Debt consolidation can be a good tool in a few scenarios, but I like it for credit repair because it does a lot of things that help boost your score.

Improves your credit utilization ratio by paying off those credit card balances – just don’t rush out to max out the cards again
Changes bad revolving debt from your cards to [slightly better] non-revolving debt with a fixed payment and payoff date
Makes it easier to manage just one payment instead of many so you don’t risk missing payments
Lowers your monthly payment and saves on interest, money you can use to pay off the debt faster or just keep from getting further in debt

I’ve used PersonalLoans.com twice before for a loan and it’s the company I recommend to most borrowers. They can approve applications down to 580 FICO so a 640 credit score won’t be a problem.

Rates will be higher than on good credit sites like SoFi and Upstart but they are still much more affordable than other online loan sites and cash advance alternatives.

Getting a loan with a 640 credit score isn’t impossible but you will have to pay a higher rate than prime borrowers. You’re just 40 points from some of the best rates though so take a few months to repair your credit if possible and you’ll save thousands on the loan. You’re not alone in the sub-prime borrower category and we’ve all been there. Focus on fixing your credit and you’ll see a whole new world of cheap money within a year.

Read the Entire Credit Series

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