Having a fair credit score is better than having bad credit
but certainly not as great as having a good credit score. If
your credit score
falls under the fair score bracket, you might have fewer
financial opportunities available. Work on building your
credit score until you have good or excellent credit. You'll
gain access to lower interest rates, better credit cards,
and more.
To avoid making bad financial decisions and know your
available credit options, you should understand where your
credit score range falls. In this article, let's learn what
a fair credit score is, how it may impact your financial
situation, and what steps you can take to improve it.
What is a Fair Credit Score?
A fair credit score is a three-digit number that falls into
the fair score range of the credit-scoring model used
to calculate it. Numerous companies use different credit
scoring models to calculate your credit scores. What fair
credit means largely depends on the credit ratings you
consider and the company that calculated them.
FICO and VantageScore are the two popular credit scoring
models that use different formulas to determine a credit
score. The credit scores under both models fall on a scale
of 300 to 850. You may only see a few distinctions between
the scores obtained from VantageScore and FICO. In most
cases, a person with a fair FICO score will also have a fair
score from VantageScore.
FICO
|
VantageScore 4.0
|
Poor: 300 to 579
|
Bad: 300 to 600
|
Fair: 580 to 669
|
Fair: 601 to 660
|
Good: 670 to 739
|
Good: 661 to 780
|
Very good: 740 to 799
|
Not Available
|
Exceptional: 800 to 850
|
Excellent: 781 to 850
|
What Is A Fair FICO Score?
According to FICO, a fair credit score is a credit score
ranging from 580 to 669. FICO scores are the most widely
used credit scores, with 90% of top
lenders
using them when making lending decisions.
If you have a FICO score between 580 to 669, your score is
considered below the average U.S. consumer score. Many
lenders will still approve loans with this score, but there
are chances that your interest rates are on the higher side.
However, a score in the mid-660s could get you a loan with
comparatively better rates than a fair credit score in the
500s would.
What Is A Fair VantageScore?
A fair score, as per VantageScore, ranges from 601 to 660.
The three major credit bureaus, Equifax, Experian, and
TransUnion, created the VantageScore credit scoring model in
March 2006 to compete with the FICO score produced by Fair
Isaac Corp. (FICO).
Is Fair Credit Good?
The average credit score in the United States is 716, which
falls in the FICO model's good credit range. Since your FICO
score, if you have fair credit, will be between 580 and 669,
it's lower than the national average score. Your credit
score is neither good nor bad if you have fair credit.
Because it falls somewhere in the middle, a fair credit
score is frequently referred to as average. Generally,
those with credit scores of 660 or higher are considered to
be low-risk borrowers by lenders. On the other hand, those
with credit scores below 660 might have a lower chance of
getting loans with better terms.
Consider your fair credit score as an essential path leading
to good credit. As you display healthy financial habits, you
might see a
boost in your credit score. Additionally, you'll know what it takes to raise your
score once you understand the credit score ranges and the
methodology used to generate them.
How Does a Fair Credit Score Work?
Your credit score is a significant three-digit number
determined by the
credit history
recorded in your credit reports. Lenders use it to assess
your creditworthiness, how likely you'll pay back your loans
on time, and to decide whether or not to lend you money.
Borrowers generally want a
good or excellent score. It's believed that the
higher your score, the greater your chances of getting
approved for a loan and securing a low
annual percentage rate
(APR).
If your credit score is fair, lenders would probably
consider you a subprime borrower - someone who will find it
challenging to repay their debts. You may often face
refusals for a loan, credit card, or another type of credit.
Even if you are accepted, some lenders might charge a higher
APR for a borrower with fair credit than someone with strong
credit. Over the
loan term, your fair credit rating could cost you hundreds or even
thousands of dollars. So, given a chance, you should always
try to improve your credit scores.
How to Improve Your Fair Credit Score
Even though you might be eligible for loans with fair
credit, raising your score could help you obtain more
favorable loan terms. You can use the following four steps
to increase your fair credit score:
1. Manage Credit Responsibly
There are various ways to show lenders that you are a
responsible borrower. Aim to make your payments on time each
month to demonstrate to lenders that you comply with the
terms of your loan agreement. Making late payments or
skipping payments can lower your credit score because your
payment history accounts for 35% of your credit score.
Your credit utilization ratio is the ratio of credit you
have used with your total available credit. You should
target 30% or less of your available per account to maintain
a healthy credit profile. For instance, if your
credit limit
is $2,000, your monthly balance shouldn't exceed $600. You
can Try to keep your utilization ratio even lower if you
want to speed up improving your credit scores. This strategy
will also helps with keep your debt in check.
2. Consistently Monitor Your Credit Report
Regularly reviewing your credit reports can assist in
ensuring the accuracy of the data reported to the credit
bureaus used to determine your credit score.
AnnualCreditReport.com
offers free copies of your credit reports from the three
main credit bureaus: TransUnion, Equifax®, and Experian.
3. Avoid Hard Inquiries From Credit Card Applications
A high number of credit accounts opened quickly could lower
your rating. Credit scoring systems take into account recent
inquiries. When you apply for a credit card, the lender
conducts a hard inquiry and carefully reviews your credit
report. With each hard inquiry, your credit score could be
reduced by two to five points. Applying for credit cards you
don't need or too many cards within a short period can take
your scores from fair to poor credit range. To avoid having
too many hard inquiries on your credit record, only apply
for a credit card once every four to six months.
4. Use Credit Builder Borrowing Options:
If you're starting to build your credit history, you might
want to add a credit card or a credit-builder loan. There
are some excellent credit cards available for people with
fair credit. You may have difficulties getting credit cards
with excellent terms if your credit score is on the low end
of the fair range. In that case, you can look for secured
credit cards. A credit-building loan from a financial
institution can be another excellent option. The FICO score
recognizes this form of loan as an
installment loan. Therefore that also offers you a slight increase in the
credit mix category of your credit report.
Keep in mind that credit-building takes time. There isn't a
quick remedy to turn your fair scores into exceptional ones.
However, there's no wrong time to begin practicing good
financial habits that will help you build your credit.
How to Get a Loan With Fair Credit?
Suppose you still want to get a loan with fair credit. In
that case, you can consider the following ways before
applying for a
personal loan
to raise your chances of getting approved even with a fair
credit score:
Prequalify For The Loan:
As the first step, you can check whether a lender offers
prequalification if you're unsure of your eligibility for a
loan with that lender. Doing this will prevent further
damage to your credit score before applying.
Find A Co-Signer:
Although a
co-signer
shares the same risk and responsibility for your loan, they
may make it simpler for you to qualify with bad or fair
credit. A co-signer with good or excellent credit can
improve your overall creditworthiness.
Reduce Your Debts:
In addition to your credit score, many lenders also consider
your debt-to-income ratio. Before submitting a loan
application, try to pay off your credit card debt to improve
your credibility in the eyes of potential lenders.
Borrow From Your Existing Lender:
Suppose you have a history of making on-time payments on
your accounts. In that case, your current lender may
understand your credit standing better irrespective of your
credit score.
Fair Credit Vs. Good Credit
Whether it is FICO or VantageScore credit score scale, fair
and good credit are next to each other. However, your
borrowing opportunities and financial challenges can
significantly vary between the two credit score ranges.
Your credit score is one of the simplest ways a potential
lender can check your creditworthiness. Generally, borrowers
with good or excellent credit are less likely to fall behind
on their payments. As a result, you're more likely to be
approved for a loan if you have a high credit score because
it shows you are a low-risk consumer. You may also be
eligible for better credit card rewards with a good credit
score, such as substantial cash offers and increased credit
limits. Furthermore, a good credit score over fair can make
renting a house or apartment easier. Landlords check your
credit to evaluate your likelihood of paying rent on time.
Conclusion
Knowing where you fall on the credit score is crucial to
make better credit decisions. In most cases, lenders will
require you to have a credit score that is at least fair to
approve a loan application. So, you shouldn’t view your fair
credit score as a terrible thing. Having a score of around
630 is significantly better than having low credit
concerning your financial options, but this isn't where you
should stop. You can make a point to regularly check your
credit score to find any errors or inaccuracies that may
harm your score and bring it down. Since your scores are not
bad or poor, you can enjoy the perks of a good credit score
by just putting a little effort into raising your credit
score.