By Carla Fried | American Express Credit Intel Freelance Contributor
5 Min Read | June 14, 2021 in Credit Score
Your FICO credit score falls into one of five categories: exceptional, very good, good, fair, and poor.
A fair credit score is considered “subprime,” which makes it harder to qualify for loans and credit cards – and you’ll typically pay higher interest rates when you do.
A fair credit score is not permanent. Commit to a few smart money habits and you can raise your score.
Even if you’ve been done with school for years, when it comes to your financial life you’re always getting new grades. Your credit score, a three-digit number that ranges from 300-850, is an important factor in qualifying for loans and credit cards. Credit scores are typically sorted into five ranges from exceptional to very poor. If you land in the fair credit score range, it’s a lot like earning a grade of C: passing, but there’s a lot of room for improvement.
The good news is that credit scores are fluid. They change continuously in response to your financial habits. If you choose to, starting today you can take steps to help move a fair credit score up a notch to good. Make smart money moves a consistent habit and that good credit score could eventually rise to very good and may even reach excellent someday. Once your credit score falls in the very good or excellent range, you’ll be positioned to qualify for better financial deals. To learn more about these ranges, see “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?”
There are two popular scoring systems. FICO credit scores are the most widely used by businesses to get a feel for how financially responsible you are. VantageScore is another scoring model. What is categorized as a fair FICO credit score overlaps with VantageScore’s fair and poor ranges, as follows:
With a fair or poor credit score, you may find it harder to qualify for loans or get a new credit card. In the financial world, a fair or poor credit score typically lands you in a broad category known as subprime, which simply means below the national average. The average U.S. credit scores stood at 711 for FICO and 688 for VantageScore in early 2021.
Lenders and credit card issuers are more interested in customers whose higher credit scores make them “prime” borrowers, so even when you’re approved to borrow with a fair or poor credit score, you’ll likely pay a higher interest rate than if your credit score was excellent or very good. For example:
Even though mortgages insured by the Federal Housing Administration (FHA) typically accept lower FICO credit scores than conventional mortgages, about 75% of recently approved FHA-insured mortgages had credit scores above 650 and only 22% had a FICO score between 600 and 650.4 All this suggests you would need your score to be in the upper portion of the fair range to have a shot at landing a mortgage.
A fair credit score signals there are some blemishes on a person’s credit report. If you learn you have a fair or poor credit score, a good step would be to request a free copy of your credit report and look for any mistakes. Reviewing your credit report is also a smart way to keep an eye out if you have been hacked by an identity thief.
Once you rule out mistakes and identity theft, it’s time to analyze your money management habits. There are a variety of factors that affect your credit score, but two key habits account for the majority of it and can drag down someone’s credit score:
To rise above fair, it’s important to focus on what matters most to the scoring models. It’s the flip side of what we just discussed:
A fair credit score can make it hard to qualify for loans or be approved for a new credit card. And even when you are approved to borrow, fair credit scores usually mean it’ll be at a higher interest rate. The good news is that focusing on a few important money habits can help you raise your credit score.