If your credit score is 625, you have Fair credit. While Fair doesn’t sound too bad on the surface, this is actually just one step away from a Poor score.
According to the FICO credit score model, the “Fair” range extends from 580 to 669. On the one hand, at 670 a score becomes “Good” and can continue on to “Very Good” and “Exceptional” from there. On the other hand, if your score dips below 580, it becomes “Very Poor,” which is the worst score you can have.
While this isn’t a reason to panic, it certainly implies that you need to do something about your credit. Fortunately, there are several things you can do to ameliorate the scenario.
The first step is to analyze why your score is so low.
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Why Your Credit Score Is 625
Your credit score is a combination of many different aspects of your financial history. Several of the most important contributing factors are included below. Review each one and consider how it has either positively or negatively impacted your financial state in the past.
Your Payment History
Your payment history is your ability to make payments on your debts in full and on time. If you miss payments, even occasionally, or on a recurring basis, it can seriously hurt your score.
This is because your payment history makes up over a third of your score, making it the number one activity that you should prioritize for better credit.
Your Credit Utilization Ratio
Your credit utilization ratio is also very important. It consists of the percentage of your available credit that you actually use.
Borrowing $1,000 against $5,000 of available credit would mean you have a 20% credit utilization ratio. If your ratio gets to be over 30% per account, it can damage your score.
Derogatory Marks and Hard Inquiries
A derogatory mark is a serious financial offense, such as defaulting on a loan or suffering through a repossession, foreclosure, or bankruptcy.
A hard inquiry merely takes place when a lender officially checks your credit score. This is a normal activity, and as long as it doesn’t happen too often, it shouldn’t be a major factor in improving your score over the long term.
Your Credit Age and Mix
The average age of your credit is also important. If you have a relatively young credit history or you recently opened up several new lines of credit, it can drag down your score.
In addition, if you only have one or two different kinds of credit, it can limit your score. In contrast, responsibly managing a variety of different forms of credit demonstrates your financial acumen and boosts your score.
Your Total Debt
The total amount of money you owe is important. This is referring to non-revolving credit — that is, money you borrow in a single-event lump sum and pay back in installments. If your total non-revolving debt gets too large, it can begin to hurt your credit score.
As you go through this list, make note of specific behaviors, such as missed payments or a derogatory mark, that you know have hurt your score in the past. At the same time, look for things like a good credit mix or minimal total debt that may be preventing your score from going lower.
You can use this information to help create an effective credit-boosting plan later on.
What Can You Do With a 625 Credit Score?
When your score gets as low as 625, you’re going to be limited with what you can try to accomplish, financially speaking. Even when you can do things, they will often be restricted. For instance:
- You can try to take out a personal loan. However, you may have to pay a higher interest rate or find a lender that specializes in giving loans to those with bad credit.
- If you want to get housing, you may be limited in your options.
- If you want to rent an apartment, you may have to pay a higher security deposit and might even be denied if the landlord doesn’t trust your credit.
- If you apply for a mortgage, you may face a similar issue with steep interest rates, even if you are approved.
- Applying for credit cards can be disappointing. Even if you can find a company to give you a credit card, you will likely have annual fees, lower credit limits, and no access to fancy rewards and benefits that are reserved for those with good credit.
Operating with a 625 credit score is difficult, to say the least. Once you understand how you got to this point, it’s wise to make plans to ameliorate the situation as soon as possible.
How to Repair a 625 Credit Score
If you’re struggling with a 625 credit score, the good news is that the task of turning your finances around doesn’t have to be overly difficult. There are several small-yet-potent financial behaviors you can integrate into your lifestyle to stop the financial hemorrhaging and begin to turn your credit around:
- Make your payments on time — every time.
- Create and stick to a budget.
- Use your revolving credit responsibly and often.
- Pay down your existing debt as fast as possible.
Additionally, get a copy of your credit report from each of the three credit bureaus and review it for derogatory marks. If you find them, fix the issue and then send a goodwill letter to the lender asking them to remove the problem. If you find an error on the report, you can also file a dispute letter with the credit bureau.
Finally, if you find the process of repairing your credit too daunting, consider getting professional help. There are many quality credit repair companies out there that can help you fix your finances. Just make sure to do your homework and choose a company that has a good reputation for achieving results.
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