The Higher Cost of a Fair Credit Score
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. In recent years, average U.S. credit scores have hovered around the 710s for FICO and 690s for VantageScore.
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:
- Credit cards: The average interest rate charged on unpaid credit card balances for new accounts opened from January to March 2021 was about 23% for people with a fair credit score, compared with approximately 13% for people with an excellent credit score.1
- Auto loans: According to Fair Isaac – provider of FICO – the average interest rate during mid-May 2021 for a $30,000, 60-month car loan if you have a fair FICO score ranged from about 10% to more than 15% – well more than double the 3.9% rate for someone with an exceptional credit score.2
- Mortgages: It may be difficult to qualify for a mortgage with a fair credit score. Typically, the lowest FICO credit score accepted for “conventional” mortgages is 620, which is in the middle of the fair range. Recently, about 77% of all approved mortgages to purchase a home had a FICO score of at least 700, and another 16% of approved loans had a FICO score between 650 and 699.3
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.