You’ve heard a ton of chatter about credit scores but aren’t quite sure how they’re calculated or what three-digit number is considered viable in the eyes of lenders and creditors. It depends on the credit scoring model – the two most popular options will be discussed in this guide. You’ll also learn what’s deemed as a fair credit score and why it’s worthwhile to work towards improving your credit health.
How Your Credit Scores are Calculated
The manner in which credit scores are calculated varies by scoring model.
FICO and VantageScore Credit Score Models
FICO (which stands for the Fair Issac Corporation) is the most prevalent scoring model as it’s used by 90 percent of creditors and lenders to reach a lending decision when you apply for credit. The information in your credit reports from the major credit bureaus – Experian, TransUnion and Equifax – is used to determine your credit rating. Here’s a breakdown of how your FICO score is calculated:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Length of credit history: 15 percent
- Credit mix: 10 percent
- New credit: 10 percent
Although VantageScore is as widely used as FICO, it’s grown in popularity in recent years. It also uses information from your credit reports to calculate your credit score. Below is a breakdown of how your VantageScore is computed:
- Payment history: 40 percent
- Depth of credit: 21 percent
- Credit utilization: 20 percent
- Balances: 11 percent
- Recent credit: 5 percent
- Available credit: 3 percent
Credit Score Range: What Is a Fair Credit Score
FICO scores range from 300 to 850 – the higher, the better. They are categorized as follows:
- 300 to 579: Very poor credit score
- 580 to 669: Fair credit score
- 670 to 739: Good credit score
- 740 to 799: Very good credit score
- 800 to 850: Exceptional credit score
VantageScores are also between 300 and 850. Here’s what these figures mean:
- 300 to 600: Subprime
- 601 to 660: Near prime
- 661 to 780: Prime
- 781 to 850: Superprime
Is It Enough to Have a Fair Credit Score?
You may be eligible for credit card and loan products with a fair credit score. However, you likely won’t qualify for the best interest rates and financing terms as they’re generally reserved for borrowers with good or excellent credit ratings.
What a Better Credit Score May Get You
Take a closer look at the opportunities you can potentially unlock by improving your credit score.
Better Interest Rates for Loans and Credit Cards
As mentioned above, the most attractive credit card and loan offers are reserved for borrowers with stellar credit ratings. Plus, you can save several hundred or thousands of dollars in interest by qualifying for debt products with more favorable terms.
Better Chance for Approval
Consumers with lower credit scores are perceived as riskier in the eyes of lenders and creditors. But if your credit score is on the higher end, you’ll have stronger approval odds (assuming you meet the other eligibility criteria for the debt product you’re applying for).
A better credit score also means you can potentially qualify for higher limits on credit cards. This is especially beneficial if you select a card that offers cash back rewards or points that can be redeemed for travel.
Better Insurance Rates
Insurance providers are allowed to use credit-based insurance scores to set premiums in select states. So if your score is high, you’ll likely get more affordable coverage.
Waived Security Deposits and Collateral
Landlords and service providers sometimes require new customers with lower credit scores to make sizable security deposits. The same applies to loan products – collateral may be required to get approved. But if you improve your credit score, you could qualify for waived security deposits along with unsecured loan products that don’t require collateral.
Ways You Can Improve Your Fair Credit Score
If your credit score isn’t quite where you want it to be, consider these strategies to help improve it.
Try Experian Boost
Experian Boost is a free tool that may help you raise your FICO score instantly by giving you credit for payments made to service providers. When you sign up, Experian will add timely phone, utility and streaming service payments you select to your credit report to boost your credit score.
Signing up also gets you access to:
- A free copy of your Experian credit report and FICO score
- A complimentary dark web surveillance report and personal privacy scan
- Access to Experian Boost
- Monthly credit report and score updates
- FICO score monitoring
- Tailored credit card and loan offers
Quick note: The average user sees an increase of 13 points, but your results will depend on what’s in your credit profile.
Avoid Missing Payments
Since payment history is the largest component of your credit score, it’s vital that you pay your credit card debts and loan payments on time. Otherwise, you risk the account being reported as delinquent to the credit reporting agencies if 30 or more days have passed, which could sink your credit score.
Pay Off Revolving Balances
The amount of credit you have accessible also plays a major role in the credit scoring calculation. Ideally, your credit utilization ratio – or the amount of your credit limit currently in use – should not exceed 30 percent to have the best chance at a healthy credit score.
Deal with Your Past Due Accounts
Settle any past due accounts current as soon as you can to stop adverse credit reporting. If in case you don’t have the means to pay the delinquent balance(s), reach out to the creditor or lender to request a payment arrangement and make adjustments to your budget to free up funds that can be used to help repay what’s owed.
Fix Errors on Your Credit Report
Unless you’re constantly keeping tabs on your credit report, it’s easy to overlook errors that could be dragging your credit score down. But with free credit monitoring from Experian, you can detect issues sooner and have them rectified right away. Plus, you’ll get access to all the perks Experian Boost users enjoy, as mentioned above.
Signing up is easy, and you won’t have to put your credit card on file to get started.
Refrain from Opening Up New Accounts
Each time you apply for any credit, a hard inquiry is generated. It remains on your credit report for up to two years, and the impact typically starts to dwindle within a few months. Although your credit score may only drop by a few points, the impact could be significant if you submit several credit applications in a short period.