How Much Can I Borrow with a 650 Credit Score?

Your credit score is just one of several factors lenders consider when deciding how much to lend you. Other factors include the loan type, debt-to-income ratio, and employment status. However, as a general rule of thumb, with a credit score of 650, you may qualify for personal loans ranging from $1,000 to $50,000. In this article, we'll examine how fair credit scores affect borrowing limits and explore some available options.

Key Takeaways

• A credit score of 650 may limit the amount you can borrow, but it doesn't mean you can't get approved for a loan.
• A 650 credit score is considered a “fair” score.
• You will probably pay higher fees and interest rates for fair credit loans.
• Improving your creditworthiness can increase your chances of getting approved for a loan with favorable terms.

What are Other Loan Terms of a 650 Credit?

Here is how a 650 credit score affects other loan features (besides the loan amount):

APRs (Annual Percentage Rate)

Often "fair-credit" loans incur higher APRs than good-credit loans. All lenders provide ranges based on the total sum you borrow and your history. We suggest factoring in the max APR when assessing competitors. 

Costs and Fees

Certain loan companies might offer borrowers with a 650 credit score low-interest rates with higher fees. Another cost you should watch for is the origination fee - a one-off payment you incur when accepting the loan. An origination fee could be a flat rate or a percentage of your loan amount.   

Repayment Terms

The repayment term is the loan’s duration. Generally, short loan terms demand larger monthly payments, whereas longer-term loans incur lower monthly payments. At times, lenders will only give shorter-term loans for fair-credit personal loans. 

Factors that Affect Loan Amount for a 650 Credit Score

Here are key factors that can affect the amount of a personal loan with 650 credit score: 

The borrower's credit score

Lenders calculate loan amounts according to a borrower’s credit score. A borrower’s credit score assesses the degree of risk a lender might assume if the loan gets approved. Criteria, such as payment history and credit utilization, are considered when calculating your credit score. Failure to make a credit card payment can negatively affect your credit score. A good credit score might increase the amount of money you can borrow. 

Income

Lenders don’t want to provide loans to individuals who can’t repay them. Thus, financial institutions will want to see how much income you make to assess if you can make your loan payments. If the repayments you wish to make form a small percentage of your earnings, you have a good chance of getting approval for your loan. 

Employment status

Most people earn their income from employment. Thus, lenders want to see if you have a stable job and source of income. Generally, lenders will examine your recent employment history to see if you have retained the same job role for 1 - 2 years. 

Credit history

An individual’s credit history is linked to their credit score. Typically, lenders will start the loan approval process by analyzing your credit score. However, they will also look at a borrower’s credit report for suspicious or unusual activity. Such activity might flag the borrower as high-risk. 

Debt-to-income ratio

Banks and lenders use a debt-to-income (DTI) ratio to ascertain a borrower’s repayment ability. This figure is especially important for sizable loans such as mortgages. Mortgage lenders anticipate that someone will spend up to 28% of their monthly gross income to pay back their mortgage. Thus, lenders favor a debt-to-income ratio between 28% - 36%. Debt-to-income ratio is determined by using the sum of the borrower’s monthly debt payments and dividing it by their gross monthly income.

How to Improve Chances of Getting a Larger Loan Amount

You cannot instantly improve your credit score. However, your financial requirements will probably not wait too long. 

Here are some tips to go from fair to good credit:

Catch up on past-due payments

To start with, you should pay off any outstanding payments. Overdue or missed payments will negatively affect your credit score. Your payment history makes up 35% of your credit score. So, establishing a regular payment schedule will stop your credit score from further decreasing and also help you raise your credit score. 

Consolidate your debt

If your aim is improved credit, you could look at a loan that consolidates your debts. It is simpler to service one large debt than to deal with different balances. This approach could help reduce stress while helping your credit score, as your payment plan will be more workable. 

Keep a low credit card balance

It is recommended to maintain a low balance on your credit card. A low balance indicates low credit utilization. Ideally, your credit utilization must be less than 30% to aid your credit score. An instance of 30% credit is if you have a $10,000 limit on your credit card and less than $3,000 owing. However, reaching the maximum limit on all your credit cards is an instance of high credit utilization. 

Don’t cancel your credit cards

Although you might want to cut up your credit cards to combat your debt, it is better to have active credit. Terminating accounts adversely impacts your credit history because financial institutions may interpret this as an inability to manage credit cards. Using credit responsibly and actively, with up-to-date payments, will better your credit score. 

Check your credit report for errors

It is in your interest to check that all the details of your credit report are accurate, ensuring no mistakes harm your score. There are many software available that can help you check your credit report. 

Types of personal loans available for a 650 credit score

The types of personal loans that are accessible for individuals with fair credit, are not different from the loan types for good credt. The only difference are the rates and fees you will get.

• Secured personal loans: You must provide an asset(s) for a secured personal loan. A Secured Loan might be a good option for an individual with a 650 credit score. However, if you fail to make loan payments, the lender might seize your asset(s).   
• Unsecured personal loans: You do not need to provide collateral to get approval for an unsecured personal loan. Unsecured personal loans are suitable for individuals with good to excellent credit. However, you could pay more interest as the lender takes on more risk. 
• Co-signed and joint loans: If you can’t qualify for a personal loan, a lender can approve you with a co-signer. This person must have a solid credit history and agree to take responsibility for the outstanding balance if you can’t meet your loan repayments. The co-signer can’t access the loan amount. 
• Fixed-rate loans: The interest rate of a fixed-rate loan doesn’t vary during the repayment period. Thus, the borrower pays the same amount every month. Fixed-rate loans might help you keep track of your spending, as your monthly loan payments won’t differ over time.  
• Variable-rate loans: Variable-rate loans have a changeable interest rate. Your monthly payments might go up or down over time if there is a change to the benchmark rate the banks established. It is tough to budget for loan repayments with a variable-rate loan. However, rates can be lower than those of fixed-rate loans. 
• Personal line of credit: A personal line of credit provides access to funds that individuals can draw on when they need money. You are only required to pay interest on the sum you use and not on the entire amount. This loan functions like credit. It is suitable for individuals who want access to funds on an as-required basis.