What's a Fair Credit Score? And Basic Tips to Raising it Higher

According to Experian data, 20.2% of Americans have a fair FICO score. The Fair Isaac Corporation (FICO) has been providing credit scores since 1989. These scores help lenders determine the creditworthiness of a borrower.

Here are FICO's credit score ranges and percentage of American's within each category:

• Exceptional: 800 - 850 (19.9%)
• Very Good: 740 - 799 (18.2%)
• Good: 670 - 739 (21.5%)
• Fair: 580 - 669 (20.2%)
• Poor: 300 - 579 (17%)

As of 2018, if you were to apply for a 30 year mortgage with a fair score between 640 and 659, your rate would be 5.146% based on FICO's mortgage calculator. Your rate would drop to 4.717% if your score were between 660 and 679 which is a mix between the fair/good range. On a $300,000 loan, that would save you $28,276 in interest payments over the life of the loan.

Steps to Improve a Fair Credit Score

It's evident that raising your fair credit score is a good step to saving money.
As you work on building a good credit score, it's important to understand what different credit scores mean.

There are five broad categories of credit scores – ranging from poor to exceptional – and they're all determined. We'll go through defining a fair credit score, and discuss benefits/tips to improving a fair credit rating.

[1] - Defining the fair credit score range

Looking at different credit scoring companies' scales, they all tend to have different definitions of fair. According to FICO scores, a fair credit record starts at 580 and ends at 669 whereas VantageScore starts their fair credit rating at 650 and ends at 699.

Your financing options will, therefore, vary greatly depending on whose definition of “fair” you’re talking about.

[2] - The benefits of improving a fair credit score

Banks avail better monetary opportunities to those clients with healthy credit ratings. For instance:

• You'll be eligible for better interests on loans, auto insurance and credit cards.
• At any given time, you'll have access to tempting credit card offers - cash back rewards, airline miles and more.
• Securing employment will be easier. Many employers look through credit reports when background checking a potential hire.
• With a healthy score, it'll be easier for you to rent an apartment and even secure a cellphone plan as providers often perform credit checks before approving a contract.

[3] - Moving from fair to good on the credit score scale

There’re limitless advantages of having better credit scores. You should be working on getting higher scores. The easiest way is by asking for those free credit reports. Check what issues are negatively affecting your rating and if there are ways if resolving them.

For instance, if you're in debt and have been slacking in payments, do something about it. Direct the maximum possible disposable income to this account. Begin by paying cards with the highest interests.

While you’re working on repaying all pending credit card balances, slowly cultivate healthy financial habits. Start by paying bills on time. Then, create a monthly budget and devise ways of keeping your spending in check. You can start by putting down a budget on pen and paper or use budgeting apps.

Finally, challenge all errors on the credit report. They often make mistakes and you can get a better score by pointing them out.

Does having a fair credit score matter?

Yes. Potential lenders will use these numbers when deciding what loans, you qualify for. These numbers are one of their tools for determining the possibility of an individual paying the loan in time. They sometimes refer to them as risk scores. Banks vary their interest rates depending on your credit scores too. Think of it as your financial “school report card”.

Interest in learning more about this subject? View 15 Useful Credit Score Facts.