Fair credit refers to credit that isn’t good or bad. It is literally in the middle. But what is considered a fair credit score? And what impact does a fair credit score have on your life?
What Is the Definition of Fair Credit?
The average credit score in the United State is around 700. However, the definition of fair isn’t based on the average. Instead, it is based on the risk associated with various credit scores.
The highest possible credit score is 850, but it is thought that less than a thousand people have achieved a credit score that high. A few percent have a credit score of over 800. A credit score over 700 is considered good. The lowest possible credit score is 300. But very few people have a credit score this low. If your credit score was good, it may fall to 550 or lower immediately after bankruptcy. If it was already low, it could fall to the low 500s or high 400s. The cut-off for bad credit is generally between 550 and 600. It really depends on the lender.
How Do Lenders Treat a Fair Credit Score?
A fair credit score doesn’t force you to take out a bad credit loan. However, creditors aren’t competing for your business, either. You are considered a moderate credit risk, though lenders will use different criteria in assessing that risk. This is why you should shop for personal loans for a fair credit score on Matchfinancial.com. They allow you to compare online personal loans for fair credit borrowers.
How Do a Fair Credit Score Impact Other Areas of Your Life?
You might be asked to put a larger deposit down before you can rent an apartment. You may be considered eligible for a job as a cashier, but they’ll be reluctant to hire you as a financial counselor. If you’re buying a car or homeowner’s insurance, a fair credit score will often result in a higher insurance premium than you’d pay if you had good credit.
How Can You Improve a Fair Credit Score?
Sometimes someone with good credit ends up with fair credit after a major event. For example, many people have their credit fall apart during a divorce. People fight over who will pay the bills, or the ex who is on the note refuses to pay it. A business failure and the attendant bankruptcy can kill your credit score, too. If you turn around and start a full-time job, you’re earning a regular income, but your credit is shot. If you are severely injured and face both loss of income and serious medical bills, your credit score may crash. If your credit score crashed due to a single major event, it will heal with time if you’ve been paying your bills on time since. This means that you could improve a fair credit score simply by waiting.
Another option is to work on reducing your debt load. Get on a tight budget. Work overtime or sell stuff. Then start paying off your debts, especially the little ones that are hard to stay on top of. Close the store credit cards that hit you with annual fees and past-due bills because you forgot about them. Close the rewards credit cards that tempt you into over-spending. Then you won’t continue to push the upper limit of your credit utilization ratio. Keep one or two long-established credit cards, because older accounts help your credit score. Note that this is an area where constantly rolling over credit card debt to new, low-balance credit cards hurts your credit. It is better to get a moderately low-interest rate credit card that you can manage long-term than roll over the credit balance yet again.
How Can You Get a Lower Interest Rate on Your Next Loan?
Credit scores are not fixed. A young adult who has never taken out a credit card or other loan doesn’t have a zero credit score; they have no credit until proven otherwise. A young adult who buys a cell phone on payments and is late on the first one will hurt their credit score. Make the next payments on time, and your credit score will improve. Focus on making all of your debt payments on time and in full, and you’ll improve your credit score over time.
Remember that late payments on major bills can hurt your credit. This means that a missed rent payment or late car insurance payment can hurt your credit score, even though they are not debt payments.
Lower the risk associated with the loan. Don’t roll over “negative equity” from a current car loan into a new one if you can avoid it. Drive the car a little while longer and pay off the loan before you get a new vehicle. Avoid rolling over credit card debt, and work instead on paying it down. When your debt to income ratio comes down, creditors see you as less of a risk.
You might be able to lower the interest rate by having a co-signer on the loan. However, this only works if they’re not otherwise liable for the debt and have a better credit history than you. For example, spouses are generally equally liable for the debt racked up during the marriage, so having your spouse as a cosigner doesn’t really help you. If a parent or sibling co-signs for the loan, then it may lower the interest rate the creditor will charge. Yet this puts them at risk since they’re obligated to pay the loan payments if you can’t make them. Don’t ask someone who can’t pay the payments to act as your financial backstop. And don’t ask someone who won’t pay the payments to co-sign for the loan. A surprisingly common problem arises when someone asks a lover or roommate to co-sign for the loan. If the relationship falls apart, they might outright refuse to pay the loan. It hurts their credit as well as yours, but they may consider that a fair price to pay to hurt you.
Try to reduce the borrower’s risk in the transaction. Put more money down on the car or furniture you’re buying on credit. If you have an unsecured line of credit, don’t max it out.