No matter what you want to accomplish in the next few years, a great credit score might help you get there. A high score can help you get a loan to start a business, open a credit card with a lower interest rate and even make the jump to owning a home. However, you might have a tough time getting the loans or cards you need with a low credit score.
But what happens when you have a credit score that’s somewhere in the middle — a fair credit score? When you have fair credit, the next actions you take could be crucial in shifting your score.
We’ll give you a refresher course on what credit is, and will share a little bit more about what banks and other lenders consider a “fair” credit score. Finally, we’ll show you how you can take steps to push your credit into the “good” zone.
Overview: What is Credit?
What exactly is credit, anyway? In short, credit is money that you borrow and that you agree to pay back in the future to your lender, usually with interest. You can use credit to buy goods and services without having cash on hand. Many people use credit to make large one-time purchases, paying them back over time instead of saving up for months on end. Creditors give you credit — some of the most common types of creditors include banks, credit card companies and online lenders.
Creditors take a big risk when they lend you money. Before you get a loan or a credit card, most creditors ask to look at your credit report. Your credit report tells creditors how you use your credit. When lenders look at your credit report, they can see things like late or missed payments on your accounts, how many loans you currently have and whether you’ve ever declared bankruptcy.
There are three major bureaus that issue credit reports: Equifax, Experian and TransUnion. Every month, each of these bureaus collects and organizes data from your creditors. Each bureau also issues you a three-digit number from the items on your report, which is called your credit score. Your credit score tells creditors about how you use credit without reading your entire report.
A high credit score means that you have a large number of positive items on your reports. A low score tells lenders that you’re more likely to borrow more money than you can afford to pay back or that you often miss payments.
Good credit is important because it shows creditors that you’re a responsible borrower. This gives you access to higher loan amounts, lower interest rates and better opportunities. The benefits of a good credit score don’t only apply when you need to borrow money. More and more landlords and employers look at credit scores when they choose who they want to rent to or work with.
What are the Credit Ranges?
Each credit reporting bureau has its own score range that it uses to determine a good credit score and a bad score. Let’s take a look at what each of the three biggest credit reporting bureaus considers to be bad, fair and good credit.
Here are the credit score ranges for Equifax:
- Poor: Below 560. According to data from Equifax, about 12% of the U.S. population has a poor Equifax credit score.
- Fair: 560-659. About 21% of people have a fair Equifax credit score.
- Good: 660-724. Around 18% of people have a good Equifax credit score.
- Very good: 725-759. About 12% of people have an Equifax score that falls into the very good category.
- Excellent: 760-850. The most common credit score range, 37% of people have an excellent Equifax score.
Experian’s score ranges are as follows:
- Poor: 300-579. About 16% of people have an Experian score that falls in the poor range.
- Fair: 580-669. Around 17% of the U.S. population has a fair Experian score.
- Good: 670-739. About 21% of people have a good Experian score.
- Very good: 740-799. Experian shows that about 25% of people fall into the “very good” category.
- Exceptional: 800-850. Approximately 21% of people have an excellent Experian score.
Instead of using a “poor-to-excellent” scoring model like Equifax and Experian, TransUnion uses a grading model. TransUnion gives your credit score a “grade” on a scale of F to A. An F is the worst score and A is the best. Here are the grades you can expect based on your TransUnion score:
- F: 300-600
- D: 601-657
- C: 658-719
- B: 720-780
- A: 781-850
The “D” grade corresponds with the “fair” category of other credit reporting bureaus.
Fair vs. Good Credit: What’s the Difference?
Consider taking some time to improve your “fair” score and get it into the “good” range. Borrowers with fair credit scores are still considered by credit cards and banks to be subprime borrowers. You’ll usually be able to find a loan or open a credit card if you have a fair score. However, you won’t get the best interest rates, and you might not be able to get the best credit card rewards.
This can result in paying hundreds or even thousands of dollars more in interest compared to someone who has a better score. Creditors might also only be willing to loan you a small amount of money, which can make buying a car or home more difficult.
Only 8% of borrowers who have a credit score in the “good” range will become seriously delinquent on one of their accounts, according to data from Experian. The numerical difference between a fair score and a good score might not seem like much, but going with an applicant who has a slightly higher score can greatly reduce risk. Improving your score as little as 20 points can make a major difference when it comes to the types of loans you’re able to get and the interest rates lenders offer you.
The Perfect Credit Score: How You Can Get There
Does your credit score need a little tune-up? No matter what your score is right now, there are steps that you can take to improve your numbers. Check out MoneyLion’s Credit Builder Plus for a 5.99% APR credit builder loan and try these tips to get started today.
Make Your Minimum Payments On-Time
About 35% of your credit score comes from your payment history. Your payment history describes how often you make at least the minimum required monthly payment on your loans and credit cards. The more minimums you miss, the lower your score will be. The best way to improve your credit score is to always make at least the minimum payment on all your accounts every month.
Sit down with all your loan and credit card statements and write down when your bills are due. Include the name of each account you pay on, the minimum payment and the payment due date. Enter this information onto a desk calendar or set an alarm on your phone to go off when each bill is due. This will help you avoid accidentally missing payments.
Keep Your Credit Utilization Low
The term “credit utilization” refers to how much you rely on your credit cards to cover your expenses. You have low credit utilization if you pay off your credit cards in full every month. You have a high utilization if you max out your cards on a regular basis. Creditors see borrowers who use too much credit as riskier, so you can raise your score by lowering your utilization.
You should ideally use less than 10% of your total available credit each month to see the biggest increase in your score. Creditors usually consider anything less than a 30% utilization rate to be acceptable. You can lower your utilization by tracking your spending, budgeting your money and making more purchases with a debit card or cash.
Check Your Credit Reports For Errors
Is your score still stagnating even though you’re doing everything right? An error on one or more of your credit reports might be the issue.
Credit reporting errors are unfortunately common and can artificially lower your score. Once a year, pull all of your credit reports and check for errors. You can get a free copy of each of your credit reports by visiting http://annualcreditreport.com/. Some common errors to keep an eye out for include:
- Accounts listed as “open” that you’ve paid off
- Incorrect spelling of your name or an outdated address
- Information from someone with a name that’s similar to yours
- Accounts you closed voluntarily as “closed by lender”
- Payments you made on time listed as late
Report errors as soon as possible to the bureau that issued the report.
Utilizing a Credit Monitoring Service like MoneyLion
You can raise your score by helping alert you to identity theft early. When you use a credit monitoring service, you get an alert every time someone makes an inquiry on your credit report or opens a new loan or account under your name.
There’s a good chance that you’re the victim of identity theft if the new item wasn’t created by you. While using a credit monitoring service won’t stop identity theft from occurring, it does allow you to nip fraudulent items fast so they’re less likely to seriously impact your score.
When you open a Zero-Fee Checking account with MoneyLion, you get access to 24/7 fraud protection and credit monitoring. If you aren’t already using a credit monitoring service, sign up with MoneyLion today to add another layer of protection to your credit.
Improving a Fair Credit Score is Possible
You might assume that it’s okay to leave your score where it is if you have a fair credit score. But just a few simple changes can save you hundreds of dollars down the line in interest. Make your payments on time, keep your credit usage under control and create a plan to pay down your debt today to see a brighter and better score tomorrow. Check out Credit Builder Plus for proven credit-building program.
Are you on the path to better credit? MoneyLion has tools that can help you take control of your credit score. Download the MoneyLion app from the Google Play or Apple App store today to learn more and get started.