Because nearly all big purchases you will make in your lifetime rely on your credit score or history in some form or fashion, it’s important to understand where you fall on the credit spectrum. If you’ve recently looked at your credit report and found you have “Fair” credit, do you know what that means? In this article, we’ll look at what a fair credit score is, how it can impact big purchases, and how to improve it.
Introduction
There’s no doubt that you’ve heard the term “fair credit” thrown about, but do you really know what it means? If it’s not good (and it’s not bad), then what is it? And, if you have fair credit, what does that mean for you and your wallet?
For the purposes of this article, a FICO Score that falls between 580 and 669 is considered to be fair credit.
Why should you understand a fair credit score?
Understanding your credit is important for so many reasons. Credit means so much more than just charges on a credit card — it extends to virtually every aspect of your life. If you have fair credit, that can mean higher interest rates on things like buying a car or home. It can also mean higher deposits for things like utilities and apartments.
However, when you understand your credit score, you can take steps to improve it. After all, knowledge is power.
As you can see from the data below, especially among younger consumers, a shocking number are completely unaware of where their credit score stands — 93% of Gen Z’ers who are not Credit Sesame members do not know their current credit score. And the older generations don’t fare much better — 89% of Millennial non-members and 84% of Gen X non-members do not know their score, either.
Percent of Americans who know their current credit score
| Generation | Knows Current Credit Score |
|---|---|
| Gen Z Members | 40% |
| Gen Z Non-Members | 3% |
| Millennial Members | 65% |
| Millennial Non-Members | 11% |
| Gen X Members | 51% |
| Gen X Non-Members | 16% |
Source: We surveyed 650 US consumers on 9/5/18 during a time period of 2 weeks.
Now that we know the importance, let’s dive a bit deeper into what a fair credit score really is.
What is a fair credit score?
If you ask around, you’ll quickly realize that there’s no single “real” number for a credit score range, even when it comes to what’s fair or average. Some say that a fair score is anything around 620 but below 650, some say it’s anything above 640 but below 670, and still others consider anything between 600 and 700 to be “fair.” To complicate matters more, there are many ways to measure credit, and a lot of it depends on the lender.
However, as we mentioned before, the widely used and recognized FICO model categorizes a fair credit score as being between 580 and 669.
No matter who you ask and what their definition of fair credit is, there is one thing they will all agree on — a fair score always has room for improvement.
If you’ve recently found out you have fair credit, you’re not alone. Here’s a quick breakdown of where Gen Z’ers, Millennials, and Gen X’ers fall on the credit score scale:
American Credit Score Ranges by Generation
| Age | Poor < 580 | Fair 580 - 669 | Good 670 - 739 | Very Good 740 - 799 | Excellent 800 > |
|---|---|---|---|---|---|
| Gen Z | 29% | 38% | 17% | 11% | 5% |
| Millennial | 35% | 24% | 10% | 16% | 15% |
| Gen X | 26% | 24% | 10% | 17% | 23% |
Source: We ran a survey of 550 US consumers in different age groups on 9/26/2018 to understand which credit score ranges they fell into and what the average credit score was for each demographic.
As you can see, anywhere from 24% to 38% of those in these generations currently have a fair credit score, falling between 580 and 669.
Who has fair credit scores?
The data we just discussed shows that there is a large percentage of the population that has fair credit. Keep in mind, however, that less than stellar credit doesn’t discriminate; it comes in all shapes and sizes.
There are many reasons a person could find himself or herself labeled with fair credit:
- a couple of missed credit card payments
- an unexpected expense that led to too much credit utilization
- temporary job loss
Consumers with fair credit do not fit into a specific socioeconomic group. Regardless of where you are, the person next to you may have fair credit. It is also something that isn’t known just by looking at a consumer, regardless of what some lenders would like you to believe.
What can a fair credit score cost you?
While a fair credit score doesn’t mean you’re completely out of options, it does mean that your options may be somewhat limited or less attractive than those who have a better credit score.
For instance, while you may still be able to get a credit card with fair credit, you will probably have to pay a higher interest rate. As you can see from the data below, someone with fair credit will also likely pay more when purchasing a car or home than someone in the credit score range just above.
Interest rate difference between fair and good credit
| Type of Loan | Fair Credit | Total Loan | Good Credit | Total Loan | Difference |
|---|---|---|---|---|---|
| 30 Year Fixed Mortgage Interest Rate $244,368 House | 5.158% | $480,786.51 | 4.767% | $459,807.97 | $20,978.54 |
| Car Loan Interest Rate $19,500 Car | 7.02% | $23,178 | 4.95% | $22,053 | $1,125 |
| Credit Card Interest Rate $5,000 Balance | 17.6% | $6,480 | 14.9% | $6,401 | $79 |
Source: Credit Sesame asked 400 members about their interest rates during a three week period beginning in September 18, 2018.
There is a big financial impact that having fair credit has over having good credit. Say you’re applying for a 30-year mortgage for a $244,368 home. If you have fair credit, you could expect an interest rate of 5.158% — but if you have good credit, that interest rate drops to 4.767%. While 0.4% doesn’t sound like much, it actually adds up to almost $21,000 over the lifetime of the loan — money that’s essentially walking out of your bank account thanks to your credit score.
If you have fair credit, don’t let these stats discourage you. The fact that you’re still able to obtain credit with a fair score is promising and, more importantly, obtaining credit is crucial to improving your credit score. Even if you do have fair credit when you are accepted for a vehicle loan or mortgage, you can always refinance once your credit is better.
Can you fix a fair credit score?
If you have a fair credit score, you can almost certainly improve your score within 12-18 months with some sound strategies.
- Open a secured credit card account. It is easy to get approved for a secured credit card. These types of cards require a refundable deposit, which becomes your credit limit. There is little risk to the lender (hence the lenient approvals) since they are able to take the funds out of your deposit if you default on a payment.
- Request an increase in your credit limits. One of the bigger factors that contribute to your credit score is your credit utilization. By increasing your credit limits, you are essentially lowering the percentage of your available credit that you’re currently using — decreasing your utilization and increasing your score.
- Become an authorized user. Becoming an authorized user on a well-established account is another great way to improve your fair credit score. By being an authorized user on someone’s account, their credit history instantly lends you credit and can help raise your score.
For more strategies on improving your credit score quickly, check out this article.
We spoke to Credit Sesame member, Adrian, to find out how he improved his score from Fair to Excellent in just 18 months. Here’s how he did it:
How Adrian changed his credit score from Fair to Excellent
Member Since: 7/10/2016
| We interviewed Adrian on July 25, 2018; he is 35 years old, divorced with full custody of his three children. He has a good job working in the computer technology field in Phoenix, Arizona. | |
|---|---|
| Q | How were you able to improve your fair credit score? |
| A: After my divorce, I tried to get a personal loan to help with bills. I got the loan, at a staggering 15% interest rate. It was then I realized I needed to better my credit. I was able to improve it by cutting out wants versus needs and working hard to make every dollar count towards either improving my credit or at the very least not harming it. Instead of not eating out three times a week, we bought food to prepare at home. | |
| Q | What strategies did you use? |
| A: I used a couple of strategies to better my credit. The first thing I did was pay extra on the personal loan every month. Sometimes that meant just a couple of dollars extra, other times I could almost double the payment. Another thing I did was to get a secured credit card. I took as much as I could out of a paycheck and put that down as the deposit. I made sure to pay it off every month and to never spend more than I could afford. After six months my credit had increased from fair to good and so I closed the secure card and got a normal credit card with a low limit. | |
| Q | How long did it take for you to see a difference in your score? |
| A: It probably took me longer than others because my car broke down and I had to have it repaired which I could not afford so I paid with my credit card. That made a slight ding because it took up over 70% of my limit, but I think making the payments helped a lot in the end. Total from when I began working on my credit to when I first saw excellent after logging into Credit Sesame took about 18 months. |
Adrian’s story is a great example of how you can improve your score with time and the proper strategies. Credit doesn’t have to be overwhelming, and Adrian proves that trying a few strategies (and sticking to them) can have a great impact on your score.
Benefits of learning about fair credit scores
The benefits of learning about fair credit and understanding your credit score and report are many. If you understand fair credit, as well as any negative information that’s on your credit report, you will be in a great position to fix any inaccurate or outdated information.
Further, there is truth to the expression “knowledge is power” — having an understanding about your fair credit will put you a step ahead in trying to turn your fair score into a good score.
Conclusion & summary
To put things in perspective, a Fair credit score is typically considered to be anywhere between 580 and 669. A significant amount of US adults have credit scores that fall into this range, so it is important to understand what it means. While you can likely get approval for various loans or credit cards, you will almost always end up paying more than someone with good credit — for the very same things.
To minimize this, it’s important to take steps now to try to improve your credit. Thankfully, there are steps you can take to improve your score quickly. Time, along with responsible financial habits, will allow your score to improve — saving you money and making your life easier.
