Definition Of “Fair” Credit
There is no standard or legal definition of “fair” credit. The three major credit bureaus have not established any categories of credit score. However, many lenders consider scores between 620 and 679 to be in the “fair” range.
The median FICO score in the US is higher than “fair.” At 720, it’s considered “good.” So you’re in the lower half (but not by much) if you have fair credit.
How Much Can You Save By Improving Fair Credit?
Unless you pay in cash, your credit score affects the cost of everything you buy. Having fair credit can cost you significantly more than having good credit. Even though a good credit score (a FICO between 680 and 739) might be just a few points higher than yours.
Luckily for you, it’s not hard to add those points and move up a level.
The discount you get for having good credit depends on the type of financing you seek — mortgage, auto, credit cards or personal loans. Here are some of the differences in interest rates as of this writing.
Currently, MyFICO says that those with fair credit can expect 30-year fixed-rate mortgage offers ranging from 5.06 percent to 4.09 percent, depending on their credit scores and the strength of their application.
Getting to 680, the low end of the “good” range, drops that rate to 3.87 percent. With a $200,000 loan amount, having good credit can save you between $8,800 and $51,000 over the life of the mortgage.
When you finance a car or house, lenders can take back the car or house if you fail to repay them. But with credit cards, there is nothing securing the loan — except your promise to pay.
The better your credit score, the more likely it is that you’ll keep that promise. Because credit cards are unsecured, your credit score has an even greater effect on your interest rate.
Several online lists of credit card offers, as of this writing, showed rates between 20 and 29 percent for consumers with fair credit — about twice those offered to applicants with good credit.
Like credit cards, personal loans are unsecured accounts. Your promise to repay is the only security the lender has.
Personal loans for people with good credit, according to one national peer-to-peer site, range between 12.74 and 15.99 percent. That’s a lot more favorable than the 16.99 to 21.49 percent offered to the next lowest tier.
How To Improve A Fair Credit Score
Your strategy for improving depends on the cause of your fair credit. Not all fair credit scores are the result of mismanaging debt.
Your score may be lower than average because you don’t use credit much, or because you’re young and have not had your accounts very long.
That’s a lot easier to fix than a low score resulting from missed payments, late payments, or too much debt.
Start With Your Free Report
So your first step is to get a copy of your credit report and FICO score, and check out the “reason codes,” which explain the biggest factors affecting your score.
You do this by ordering your report at the government’s site, annualcreditreport.com, and you can purchase your FICO scores for a small fee.
Don’t bother with other sites –there’s a reason their scores are called “FAKE-O” scores. Lenders use FICO scores almost exclusively, so that’s what you need to check.