When you start paying attention to your credit score, you’ll begin to notice that it’s not as cut and dry as having either good or bad credit. There are actually several distinct categories of scores that creditors use to make financing decisions. The fair credit category is a common one that raises a lot of questions about what it means for your finances and how you should focus your credit efforts.
If you’re wondering whether or not your credit score is considered fair, keep reading to find out the parameters of this category. You’ll also find steps you can take to better your odds for credit approval and competitive rates. When you’re on the same page as potential lenders, you’ll have a much better understanding of how your credit is viewed and the best strategies for you moving forward.
5 Credit Score Ranges
While there are a couple of different credit scoring companies available from which you can access your score, FICO is the one that’s most widely used by lenders across the country. VantageScore is another model created in partnership by the three main credit bureaus, but it hasn’t taken off as much as the already-established FICO scoring model. Both companies use the same score range, however, so it’s easy to compare your credit regardless of which one you or your lender uses.
When looking at credit, your score can range from a low of 300 to a high of 850. Your financial past influences your score, which fluctuates depending on a number of factors like your payment history on loans and credit cards and the amount of debt you carry.
Lenders use five different scoring categories to evaluate your credit profile and approve your application for credit. If approved, your credit score category is also the largest contributing factor of the interest rate you’ll be offered, directly affecting how much you’ll pay over time as you repay your debt.
Here are the five categories so you can get a better idea of your own credit profile from a lender’s perspective.
Excellent / Exceptional: 800 to 850
This is the best category for those with the highest credit scores out there. People in this category likely have no late payments or other delinquencies listed on their credit reports and have a manageable amount of debt, including a low amount of revolving debt from credit cards.
Very Good: 740 to 799
Still a great range to be in, the “very good” category could award you some of the best interest rates from lenders, depending on their lending guidelines.
Good: 670 to 739
The “good” range is considered to be average when it comes to credit score. You may have a few blemishes on your credit report, but nothing major to send a red flag to future creditors.
Fair: 580 to 669
A fair credit score is considered below average, likely due to a recent payment that was over 60 days late. You may get approved for credit, but the rates you’ll pay will likely be above average.
Very Poor: 300 to 579
This final credit category is reserved for individuals with high credit utilization, multiple late payments, and more serious financial events such as a recent bankruptcy.
Difference Between Fair and Good Credit
It may seem like “fair” and “good” credit would be interchangeable, but there are a few distinctions that can place your score in one category over the other. When you’re right on the line between these two categories, the side you fall on may be determined by the day on which your credit score is pulled.
That’s because your credit score is constantly changing depending on both large and small factors. For instance, even if you pay off your credit card balances each month, your score could reflect a large outstanding balance if it’s pulled by a lender before the payment is reported by your credit card company.
The biggest difference you’ll find between a fair and good credit score is the interest rates you’ll receive. For credit cards, you could very well still get approved with either type of score. But the lower your score is, the higher your interest rate will be.
Average Credit Scores in the U.S.
The average American’s credit score is 704, which falls into the “good” category. That means if you have fair credit, you’re slightly below average. However, you’re definitely within reach of achieving the national average, especially if your score is on the upper end of the spectrum.
It’s also important to realize that while a 704 is the average FICO credit score for the general model, your lender may use a different scoring model depending on the lender’s software version and the type of loan you’re getting.
FICO 8 is currently the most common model for general credit inquiries. Your score could vary, however, for auto lending and even credit cards in some instances. When applying for an auto loan, for example, there are a few different versions of the FICO Auto Score, which all place a greater emphasis on your car payment history.
The same holds true for credit card applications, which often use the FICO Bankcard Score. This model more heavily weighs your credit utilization to make sure that an extra credit card wouldn’t skew your revolving credit too much.
How to Find Out if You Have Fair Credit
The best way to find out if you have fair credit is to get access to your FICO credit score. Yes, there are plenty of websites offering a free credit score, but these are frequently considered “FAKO” scores because they don’t use the exact same algorithm used by FICO. Consequently, these should only be considered for general educational purposes because people often cite that their score pulled by a lender is different.
So how can you find out your FICO score?
The most direct option is to visit the MYFICO website and order a copy. You’ll have to pay money for this service, however, and may need to order scores from all three credit bureaus in order to get the most accurate perspective.
A more cost-effective option is to check with your bank or one of your credit card providers. Many financial institutions now offer members free FICO Score updates as an ongoing benefit. It’s definitely worth looking into so you can save yourself money, not to mention keep up with any changes in your credit score status.
Once you get access to your credit score, compare it to the ranges listed above. That gives you an idea of your credit profile in the eyes of a lender. It also gives you a way to create goals for your credit and overall finances.
If you discover your credit score is fair (or close to it), you should next request a free copy of your credit report to find out what’s bringing down your score. A few simple changes in the way you manage your finances could bump you up to the good category.
3 Ways to Increase a Fair Credit Score
Once you find out you have fair credit and want to move up into the good credit category (or even higher over time!), follow these steps to start seeing progress.
1. Dispute Wrong Credit Entries
With your credit report in hand, make sure all of the information is completely accurate so that nothing is hurting your score when it shouldn’t be. Potential issues include incorrect balances from your creditors, late payments older than seven years that should have dropped off, or even accounts fraudulently opened in your name.
2. Pay Down Large Debts
Most people have some type of debt, but having too much can bring down your score. This is true more so of revolving credit like credit cards rather than installment loans like a mortgage or student loan. Ideally, you’ll want your outstanding balance on each card to be less than 30% of your total available line of credit. In addition, you can write a pay-for-delete letter. A pay for delete letter is a document consumers draft up and send to debt collectors requesting the removal of collection accounts in exchange for payment.
3. Make a Habit of Paying Bills on Time
Your payment history is a huge factor when it comes to your credit score. Any credit or loan payment made more than 30 days late can appear on your credit report and stay there for seven years. That’s why a routine of paying your bills on time is a critical piece to successfully moving from having fair credit to good credit.
The Bottom Line
Although having a fair credit score isn’t the worst possible category to be in, there’s definitely some room for improvement. No matter where you fall in the fair category, you’ll likely receive better rates and terms on financing if you can move into the good category of credit scores.
With a few actionable steps, you can take better control over your finances and start building your credit score day by day. It’s not something that can happen overnight, but it is something that can have a huge impact on your finances over time. Even taking just one step towards better credit can help you start seeing results so you can move from fair to good credit, and even beyond.
