Your credit score is a key factor in your financial well-being, influencing everything from loan approvals to interest rates. Whether you’re looking to get a credit card, finance a car, or rent an apartment, knowing where you stand can make a significant difference.
In this article, we’ll explore what constitutes a fair credit score, the typical profile of someone with fair credit, and actionable steps you can take to improve your score. By gaining insight into these areas, you’ll be better equipped to enhance your credit and unlock more favorable financial opportunities.
Key Takeaways
- A fair credit score ranges from 580 to 669 on the FICO scale, and while it allows for some credit opportunities, it often comes with higher interest rates and fees.
- Improving your credit score involves steps like disputing inaccuracies on your credit report, making timely payments, paying down debt, and maintaining a low credit utilization ratio.
- While fair credit isn’t the worst, working towards better credit can provide access to more favorable financial products and terms.
What is 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, the fair credit score range is from 580 to 669.
FICO Credit Score Ranges
- 300–579: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800–850: Exceptional
There are a couple of different ways you can check your FICO scores. 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.
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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 past 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.
See also: What Is the Average Credit Score in America?
Fair Credit vs. Poor Credit
Understanding the differences between fair credit and poor credit can help you make informed financial decisions and take steps to improve your credit standing. Fair credit and poor credit scores can significantly impact your ability to obtain loans, the interest rates you are offered, and even your ability to rent an apartment or secure affordable insurance premiums. Below, we highlight the main differences between fair credit and poor credit to illustrate how your credit score affects various aspects of your financial life.
| Aspect | Fair Credit (580-669) | Poor Credit (300-579) |
|---|---|---|
| Loan Approval Chances | Moderate, but often with higher rates | Low, with many applications likely denied |
| Interest Rates | Higher than those with good credit | Highest rates and fees |
| Credit Card Availability | Available but with limited benefits | Limited options, often secured cards |
| Need for Co-signer | Possible for larger loans | Likely required for most loans |
| Renting an Apartment | May require a higher deposit | Often requires a larger deposit or co-signer |
| Insurance Premiums | Higher than those with good credit | Highest premiums |
Fair credit example: Jane has a credit score of 650. She applies for a car loan and is approved but with an interest rate of 10%. If her credit score were higher, she might have secured a rate of 5%, saving her thousands over the life of the loan.
Poor credit example: John’s credit score is 550. He struggles to get approved for a credit card and finally gets one with a $300 limit and an annual fee. He also needs a co-signer to rent an apartment, adding extra hurdles to his financial life.
Fair Credit vs. Good Credit
Knowing the difference between fair credit and good credit can empower you to take control of your financial future. While a fair credit score provides access to credit, it often comes with less favorable terms compared to a good credit score.
A better understanding of these differences can help you prioritize actions that will improve your credit score, leading to better loan conditions, lower interest rates, and enhanced financial opportunities. Below, we compare fair credit and good credit to show how a higher credit score can positively impact various aspects of your financial life.
| Aspect | Fair Credit (580-669) | Good Credit (670-739) |
|---|---|---|
| Loan Approval Chances | Moderate, with higher rates | High, with better rates and terms |
| Interest Rates | Higher than those with good credit | Lower, more favorable rates |
| Credit Card Availability | Available but with limited benefits | Wide range, often with rewards and perks |
| Need for Co-signer | Possible for larger loans | Rarely needed |
| Renting an Apartment | May require a higher deposit | Standard deposit, less scrutiny |
| Insurance Premiums | Higher than those with good credit | Lower, more favorable rates |
Tips to Move from Fair to Good Credit:
- Timely payments: Make sure all bills are paid on time to build a positive payment history.
- Reduce debt: Pay down existing debt, focusing on high-interest credit cards first.
- Credit utilization: Keep your credit utilization ratio below 30%. If you have a credit limit of $10,000, aim to keep your balance under $3,000.
- Check credit reports: Regularly check your credit reports for errors and dispute any inaccuracies.
- Add positive history: Consider a secured credit card or a credit builder loan to add positive payment history to your credit report.
By following these steps, those with a fair credit score can work towards achieving a good credit score, opening the door to better financial opportunities and more favorable terms.
How can you turn your fair credit into excellent credit?
Improving your credit score from fair to excellent takes dedication and strategic actions. Here are some effective tactics, broken down into step-by-step instructions, to help you achieve an excellent credit score.
1. Dispute Inaccuracies on Your Credit Report
- Obtain your credit reports: Get your free credit reports from Experian, Equifax, and TransUnion through AnnualCreditReport.com.
- Review each report: Carefully examine each report for errors, such as incorrect personal information, accounts that aren’t yours, or inaccurate payment histories.
- File disputes: If you find errors, file a dispute with the relevant credit bureau. You can do this online, by mail, or by phone. Alternatively, you can also enlist the help of a professional credit repair company to manage the process for you.
- Provide documentation: Include copies of any supporting documents that prove the errors.
- Follow up: Monitor the status of your disputes and follow up if necessary. Corrections can take up to 30 days.
Example: Jane found an incorrect late payment on her credit report from Equifax. She gathered her bank statements showing on-time payments, filed a dispute online, and within a month, the error was corrected, boosting her score by 20 points.
2. Make Payments On-Time
- Set up reminders: Use calendar alerts or set up automatic payments for your bills.
- Prioritize payments: Always pay at least the minimum amount due on each bill by the due date.
- Address late payments: If you miss a payment, pay it as soon as possible. Contact your creditor to request a waiver of the late fee or to discuss options.
Example: Mark set up automatic payments for all his credit cards and loans. Over a year, he avoided late payments entirely, which significantly improved his payment history and credit score.
3. Pay Off Your Debt
- List your debts: Write down all your debts, including credit card balances, loans, and their interest rates.
- Choose a strategy: Decide between the debt snowball method (paying off the smallest debts first) or the debt avalanche method (paying off the highest interest debts first).
- Make extra payments: Whenever possible, pay more than the minimum payment to reduce your debt faster.
- Monitor your progress: Regularly check your balances and celebrate small victories to stay motivated.
Example: Lisa used the debt avalanche method to tackle her high-interest credit card debt first. By making extra payments whenever she had extra cash, she reduced her total debt by $5,000 in a year and saw a significant credit score increase.
4. Maintain a Low Credit Utilization Ratio
- Calculate your ratio: Divide your total credit card balances by your total credit limits.
- Aim for below 30%: Keep your credit utilization below 30%. For example, if your total credit limit is $10,000, try to keep your total balance below $3,000.
- Distribute balances: Spread out your balances across multiple cards to avoid high utilization on any single card.
- Request credit limit increases: Ask your creditors for higher limits, but avoid increasing your spending.
Example: Tom had a $10,000 credit limit and a $4,000 balance. He paid down $2,000 and requested a credit limit increase, raising his limit to $15,000. This lowered his utilization ratio to 13%, resulting in a higher credit score.
5. Diversify Your Credit Mix
- Assess your current credit accounts: Review the types of credit accounts you currently have, such as credit cards, installment loans, and mortgages.
- Consider adding different types: If you only have credit cards, consider adding an installment loan or a mortgage to your credit mix.
- Apply strategically: Only apply for new credit when necessary and ensure you can manage the additional debt responsibly.
- Monitor impact: Track how adding different types of credit accounts affects your credit score over time.
Example: John primarily used credit cards but decided to take out a small personal loan to diversify his credit mix. This addition of an installment loan, combined with responsible payment behavior, helped boost his credit score.
6. Get a Secured Credit Card
- Research options: Look for a secured credit card with low fees and good reviews.
- Make a deposit: Open a secured card by making a refundable security deposit, usually starting at $200.
- Use responsibly: Use the card for small purchases and pay off the balance in full each month to build a positive payment history.
- Monitor your credit: Ensure your payments are reported to the three major credit bureaus.
Example: Emma opened a secured credit card with a $500 deposit. She used it for grocery shopping and paid off the balance in full each month. After a year of responsible use, her credit score improved, and she was offered an unsecured credit card.
By following these steps, you can gradually improve your fair credit score and work towards achieving excellent credit. Consistency and responsible financial habits are key to building a strong credit history and unlocking better financial opportunities.
See also: Best Secured Credit Cards
Bottom Line
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 make a plan to improve your credit habits. That way, you can build a better financial future with competitive interest rates and loan terms that suit your own needs.
