When you need to apply for financing, whether it’s a credit card or a car loan, you might start paying attention to what kind of credit score you have.
After all, lenders use that number to determine whether you’re approved, and if you are, what kind of interest rate you’ll be charged.
Think you have fair credit?
Keep reading to find out what it means to have fair credit and how you can start improving your credit history to access better rates and financing terms.
What is considered a fair credit score?
FICO, the most widely used credit scoring model in the country, uses a credit score range from 300 to 850 to determine consumers’ credit scores. Using the FICO credit score model, a “fair” credit score ranges from 580 to 669.
There are a couple of different ways you can check your credit score. First, see if your bank or credit card offers a free FICO score. Many financial institutions offer this free service to their members.
If you don’t have access to a free credit score, you can purchase it directly from FICO. You can also use free online credit scores as a reference point, but they generally vary from the true FICO score since they use different algorithms.
What are the characteristics of someone with a fair credit score?
There are no published criteria stating what exactly a fair credit score entails, but experts have gleaned that this type of consumer has the following characteristics:
- At least one credit card or loan
- No more than $5,000 in credit lines
- No more than one 60+ day late payment in the last 12 months
So what does this mean for fair credit borrowers?
To bump your fair credit scores to the “good” credit score range, you’ll need to have your 60+ day delinquencies removed or aged beyond 12 months.
Additionally, you’ll typically need about three years of credit history to bump up your credit score. Once you hit a credit score of 670, your credit score is in the good range, and you will have better credit opportunities available to you.
Are fair and average credit scores the same?
The average American’s credit score is up to 700 on the FICO score range. That’s more than 30 points above the top end of “fair,” so they definitely don’t mean the same thing. Typically, the bottom of the credit score range is considered bad, then fair, good, very good, and excellent. Most Americans, then, have good credit.
Your credit can affect many aspects of your life, even beyond interest rates for financial products. Some employers may request to access your credit report during the job application process.
Potential landlords can do the same when you’re trying to rent a new house or apartment. Another hidden cost of having below-average credit is higher insurance premiums.
It’s vital to know how to build and maintain credit, regardless of where you currently fall on the spectrum.
How can you avoid going from fair credit to poor credit?
If you want to have higher credit scores, you first need to know how to maintain them. For example, avoid making late payments (more on that shortly), and don’t close any credit cards unless you’re paying an annual fee.
Why? The age of your credit history is a factor in your credit score. When you close old accounts, you’ll eventually lose that long history on your credit report.
Also, avoid acquiring more debt. Save up an emergency fund so you don’t have to use your credit cards as your financial backup.
Finally, avoid getting any public records like a judgment, tax lien, or bankruptcy. These can cause dramatic drops in your credit scores and will likely take you from the fair credit category to the bad credit category.
It can be challenging to dig yourself out of having bad credit, not to mention all the limitations you’ll face when trying to obtain any type of new financing. Even if you qualify for a loan or credit card with bad credit, it’ll cost you a lot in interest, fees, and potentially security deposits.
How can you turn your fair credit into excellent credit?
You can do several things to begin raising your fair credit scores to the next level. Here’s a quick rundown of various tactics, some of which can quickly increase your fair credit scores, while others may take more time.
After receiving your three credit reports from Experian, Equifax, and TransUnion, check each one for accuracy. If you see any errors, file a dispute with the relevant credit bureau.
Alternatively, you can also enlist the help of a professional credit repair company to manage the process for you. Either way, it can take time to get incorrect items removed from your credit report. But once you do, you could see a big jump in your credit scores.
Make Payments On-Time
The largest factor impacting your credit scores is payment history. Any payments that are late more than 30 days can be reported to the three major credit bureaus by your creditors.
If you have negative listings and they’re accurate, you may need to wait for them to age a bit so your credit score is affected less significantly. Moving forward, make sure you prioritize your bill payments so that they’re on time each month.
Pay Off Your Debt
If you’re looking for a quick credit win, consider paying off a large chunk of your debt, if possible. Depending on how much you owe, your credit score can really jump by lowering your amount of debt. This is especially true with credit cards, which hurts your credit more than installment loans.
Maintain a Low Credit Utilization
Another relevant consideration when paying off your debt is how much credit you utilize on each credit line. If you have more than 30% of your credit limit charged to a credit card, your credit score will drop.
So when deciding on how to pay off your credit card debt, consider paying each one down to the 30% threshold. On a credit card with a $10,000 credit limit, for example, you shouldn’t carry more than a $3,000 balance at any given time.
Having a fair credit score certainly isn’t the worst situation. But as with most things in life, there’s definitely room for improvement.
Once you’ve identified where your credit falls short, you can next make a plan to increase it. That way, you can build a better financial future with competitive interest rates and loan terms that suit your own needs.