What is Fair Credit?

Borrowers with a fair credit score have room for growth if they are willing to be persistent. 

Credit scores can be confusing. You might not always be certain of the meaning behind the three-digit number that comprises your credit score. But you generally can understand what it means to have a credit score that is “good” or “bad.”

But what if you have a “fair” score? What exactly does that mean?

Credit score review

Your credit score is a three-digit number compiled by Fair, Isaac and Company, or FICO. FICO calculates your score using information about your payment history and debts that have been gathered by the three major credit bureaus.

Your score is a number between 300 and 850. The higher this number, the better your odds of qualifying for loans and the better rates you can access.

You also have a VantageScore, which is similar but was created more recently as a competitor to the FICO score.

Fair credit

“A ‘fair’ credit score falls in between a 580-699 on the FICO and VantageScore Model rating charts,” said Beverly Friedmann, content manager for ReviewingThis. “It’s technically right in the middle, above a bad or poor rating and below a good or excellent score. But while a fair credit rating is in the middle of the index and not considered poor, it is also not considered good (in terms of qualifying for loans and credit cards). You’ll end up paying higher interest rates on any loans, cards, or mortgages with a fair score than someone with a good or excellent reputation.”

Friedman also pointed out that there’s a… fair… degree of variance within that “fair” rating: “However, where you fall on this index can often make quite a difference. A few points can change the way lending companies interact with you, and a 580 score is quite different than a 699 score. It’s important to bear in mind, however, that fair credit is certainly superior to poor credit. You can qualify for different loans and credit cards and rebuild your reputation score easily, which is very challenging for those with poor or bad credit scores.”

If you find out that you have fair credit, you should take that as a sign that you have room to grow while not letting any bad habits you have drag your credit down into the “poor” range.

Moving beyond fair

Payment history is the most important factor contributing to your credit score, followed by the amount of debts you currently owe. That is why Nathan Wade, managing editor for WealthFit Money, recommends focusing your attention in that direction.

“Having fair credit means you’re much closer to improving it than someone with bad credit,” he said. “Ensure that you’re paying bills on time, pay off any debt you’re in, and avoid applying for too much credit in a short period of time. It’s also important to look for any mistakes on your credit reports and dispute them immediately.”

You can get a free copy of your credit report from AnnualCreditReport.com. Do not use any other sources to get a copy of your credit report, no matter how catchy their jingle might be, as it could be an attempt to scam you.

How credit cards can help (if used wisely)

Since you don’t have poor credit, you don’t have to be quite as risky about taking out loans, though you should still utilize significant discretion.

While you should heed Wade’s warning about applying for too many different forms of credit too quickly, a credit card can be a good way to build your credit score, as long as you don’t use it too much and you pay off your entire bill each month. If you are paying off your whole bill each month, then it won’t matter that the interest rates on your card might be higher since you won’t actually have to pay any interest anyway. However, if you aren’t paying off the full amount, you will end up owing more on the balance and hurting your credit utilization ratio.

You could also consider a secured credit card to help build your credit. This is a credit card that requires the user to put down cash as collateral, but it is easier for borrowers to qualify.

Building credit can be a long and dedicated process, but you should feel encouraged in the knowledge that you aren’t starting from the bottom. Pay down your debts in full and on time, and you’ll be well on your way to “good” credit before you know it.

For more information on credit scores and how they work, check out the following:

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Contributors

Beverly Friedmann works as a content manager for the consumer website ReviewingThis, has a background in sales and marketing management, and is from New York, NY.  Find more information on Twitter @ReviewingThis.
Nathan Wade is the Managing Editor for WealthFit Money. Find more information on Twitter @GetWealthFit.