Credit Tier Breakdown: Fair Credit

What kind of loan can you get?

If you have a FICO credit score between 630 and 679, lenders may see you as less-than-reliable. You will feel the negative effects of your score most severely when you apply for unsecured personal loans, especially ones from traditional lending institutions, like a bank.

Since unsecured loans don’t require collateral, decisions to lend money or deny loan applications are made based entirely on the borrower’s ability to repay the loan. Or rather, they are made on the lender’s belief in the borrower’s ability to repay. As such, a borrower’s credit score is crucial for getting approved for an unsecured loan from a traditional lender.

With a score between 630 and 679, you will most likely not qualify for traditional unsecured loans. However, you still might qualify for a personal loan from a non-traditional, internet-based lender. These lenders usually offer higher rates than traditional lenders, but those higher rates allow them to lend to borrowers with lower scores.

You will still probably qualify for secured loans, like auto loans and mortgages, though you will likely be charged higher interest rates. If you’re not careful, those high rates could lead you to default on the loan and have your car or house repossessed.

What kind of interest rates can you get?

If you have a score between 630 and 679, it sends a signal to lenders: this borrower is not great at paying back the money they owe. While some won’t lend to you at all, however, the lenders who do will charge more interest.

According to the MyFico Loan Savings Calculator, a person with a score of 655 who takes out a $300,000, 30-year, fixed-rate mortgage would pay over $66,000 more than a person with a score of 760. That same calculator estimates that a person with a 655 credit score who takes out a $30,000, 60-month auto loan would be charged an annual percentage rate (APR) of 9.661%, almost three times the 3.517% rate that someone with a 760 score would be charged. That adds up to an additional $5,186 paid in interest.

Higher interest rates are not the only way that having fair credit will increase your costs. Roslyn Lash, AFC®, Founder of Youth Smart Financial Education Services, says “If you’re buying a car, don’t expect to receive ‘a 0 percent interest rate, rebates, or incentive.’ These perks are reserved for persons with good credit.”

However, Lash is clear that people with scores in this range still have options, saying “If you put more money down, you’ll be able to buy the car,” but “since your interest rate will be higher, your payment will also be higher.”

What can I do to improve my score?

If you have a credit score between 630 and 679, you likely carry high balances month to month on your credit card. If that’s true for you, then getting those balances down is a great way to start improving your score even if you can’t get them all the way to zero.

Lash recommends that you “Keep your balance under 30%of your credit limit.  For example, if you have a card with a $1,000 limit, try to keep the balance at no more than $300.”

However, there’s something you can do that’s even more impactful than the30% benchmark. As Lash puts it, “The most important action to take is to pay your bills on time. This simple act has the greatest impact on the credit score.”

Set reminders on your phone, go into your bank account, and set up auto-pay, or write a sign to hang on your bathroom mirror that says, “Remember To Pay Your Bills.” Whatever it takes, do it.

Your payment history makes up 35% of your credit score and your amounts owed make up an additional 30%. While there are no ways to instantly improve your credit score, taking care of those two categories will go a long way, which will net you better loans at lower rates.

Roslyn Lash< (@RosLash) is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services. She specializes in youth financial education, and adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair. Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.