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 and credit card issuers use your credit scores 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, 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.
Fair Credit vs. Poor Credit
A poor credit score is any score below 580. While having good credit is ideal, understanding the differences between fair credit and poor credit can help borrowers make better financial decisions.
Fair credit can still be difficult to obtain a loan or line of credit. Borrowers with a fair credit score may be offered higher interest rates and fees, or may be required to provide additional collateral or a cosigner to secure a loan. On the other hand, borrowers with poor credit may have difficulty obtaining a loan at all, as lenders may consider them to be too risky.
It is important to understand how credit scores are determined to improve or maintain fair credit or avoid poor credit. Payment history and the amount of credit used are the two most significant factors.
Paying bills on time and keeping balances low can help maintain or improve a credit score. Other factors such as length of credit history, credit mix, and recent inquiries can also affect a credit score.
The consequences of poor credit can be severe. Borrowers with poor credit may be denied for loans, have higher interest rates, or have to pay higher deposits for utilities or rent. Poor credit can also be a red flag to potential employers, as it may be an indication of someone’s financial responsibility.
Having fair or poor credit can have a major impact on a person’s financial security, so it is important to understand the differences between the two. By understanding how credit scores are calculated and taking steps to maintain good credit, borrowers can improve their chances of obtaining a loan or other financial assistance.
Fair Credit vs. Good Credit
It’s easier for someone with higher credit scores for someone to borrow money from lenders. Those with fair credit have a credit score between 580 and 669, while those with good credit have a score between 670 and 739.
Those with a fair credit score can still be approved for some loans and credit cards, but the terms will likely be less favorable than for someone with good credit. They may be subjected to higher interest rates, fees, and other costs. They may also be required to have a co-signer or collateral to secure a loan.
People with a good credit score will generally have more options when it comes to borrowing money. They may be able to obtain lower interest rates and fees, and they may not need a co-signer or collateral. They may also be able to qualify for special offers and rewards programs.
Those with fair credit can take steps to improve their credit score. This includes making all payments on time, paying down debt, keeping balances low on credit cards, and avoiding taking out too many loans. Over time, these steps can help improve a credit score, allowing someone to eventually qualify for better terms and offers.
It is important to understand the differences between fair credit and good credit and take steps to improve your credit score. Having a fair credit score is not necessarily a bad thing, and it does not have to be a permanent condition. With diligence and patience, someone can work to improve their credit score and eventually obtain better terms and more options when it comes to borrowing money.
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 Ratio
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.
Get a Secured Credit Card
If you’re having trouble getting approved for credit cards, a secured credit card may be a suitable option. A secured credit card is a type of credit card that is backed by a security deposit. It doesn’t require a credit check.
When you open a secured card, your credit limit is usually equal to the size of your security deposit. You use it like any other credit card. Then, once you make payments, they get reported to the credit bureaus and this allows you to establish a positive payment history.
See also: Best Secured Credit Cards
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.