What Is a Fair Credit Score, and Is Fair Good Enough?
A decent credit score is the key to many financial opportunities, but is a “fair” credit score enough to help you access them?
Contributing Writer at Tally
October 10, 2022
You’ve probably heard you should aim for a decent credit score — that’s any score that falls in the “good,” “very good” or “exceptional” category. But what is a fair credit score, and how does it fit into the picture?
Below, we’ll explore what a fair credit score is, the mechanisms behind credit scores, why they matter and strategies to improve them.
What is a fair credit score?
Your credit score is a number that represents the health of your credit history and your reliability as a borrower.
Leading credit scoring agencies FICO and VantageScore measure credit scores using a scale between 300 and 850.
The FICO Score thresholds for each category are as follows:
Poor credit score: Under 580
Fair credit score: 580 to 669
Good credit score: 670 to 739
Very good credit score: 740 to 799
Exceptional credit score: 800+
VantageScore has a similar system.
Based on the credit score ranges, a fair credit score is between 580 and 669. But what does this mean, and what determines your score?
How credit scoring works
To understand what a fair credit score means, you’ll need to know the mechanisms behind the calculations.
The three credit bureaus — Experian, TransUnion and Equifax — collect data about borrowers like you and compile credit reports. Then, credit scoring agencies, like FICO, use these reports to determine your credit score.
There’s some variation between scores since each agency uses different credit scoring models. But they use similar factors, so we’ll continue focusing on FICO for simplicity since it’s the most widely used credit score.
A FICO credit score is determined by:
Payment history: Whether you’ve previously made your payments on time
Amounts owed: How much of your available credit you’re using
Length of credit history: How long your credit accounts have been open
Credit mix: How many different types of credit you have
New credit: How often you open new credit accounts
Is fair credit better than good credit?
No. Fair credit is lower than good credit but higher than poor credit.
Using the FICO scoring model, we’ve established that a fair credit score is between 580 and 669. But how far will that get you with lenders?
Securing a fair credit score can be a great initial milestone, especially if you’re coming from a bad credit score. However, most lenders will still consider you a subprime borrower if you’re at the lower end of this range.
For context, Americans’ average credit score in 2021 was 714, which falls within the “good” range. You’ll be viewed more favorably by lenders if your score is “good,” “very good” or “exceptional,” and the best lending opportunities usually go to those with a score of 800 or higher.
What will a fair credit score get you?
What is a fair credit score going to qualify you for? It won’t get you the ideal loan or credit card terms that you’ll get with a good or excellent credit score, but it also doesn’t completely shut you down from all loans and credit cards.
With fair credit, you’re still eligible for a mortgage; the FHA requires only a 580 credit score for its 3.5% down payment program and a 500 for its 10% down program. Many conventional mortgages will approve you with a 620 credit score, putting them within reach of those on the upper end of the fair credit score range.
As for VA loans, there’s no minimum credit score, although individual loan providers offering VA loans may have minimum requirements.
You can still get approved for an auto loan with a fair credit score, albeit with a higher interest rate. For example, on average, those with a credit score of 500 to 600 get an 11.33% interest rate on a new car and 17.78% interest rate on a used car loan. These drop to 7.14% and 11.41%, respectively, with a 600 to 660 credit score.
To put that into perspective, a super-prime buyer, one with a 781 to 850 FICO Score range, got an average interest rate of 3.24% on a new car and 4.08% on a used car.
It’s also possible to get a credit card with a fair credit score, although not with top-notch perks and low interest rates. Generally, these will be standard credit cards with no rewards or ones with rewards that also include an annual fee.
If you can’t get approved for a credit card due to your credit history, a secured credit card — one that requires a security deposit matching the credit limit — is an option.
Why do credit scores matter?
Now that we’ve established what a fair credit score is and how it’s calculated, there’s an even more important question. Why should you care in the first place? Here are three key reasons.
Increased credit approval odds
Lenders use credit scores to make their lending decisions and determine if a borrower is reliable and creditworthy.
If you have a fair credit score, you may encounter limitations when accessing credit like personal loans, student loans and credit cards. You might be able to get some form of loan, but boosting your score up to the “good” range will provide you with more opportunities.
For instance, the best credit cards — those with perks like cash back and points — tend to ask for higher credit scores. However, lenders have varying credit score requirements, and some specifically market their products to those with a low score or limited credit history.
Better credit card and loan terms
But this isn’t just a case of being accepted versus rejected. A better credit score generally means a borrower will make on-time payments. This gives the borrower a higher chance of qualifying for favorable terms on a credit card or loan, such as lower interest rates, which results in lower monthly payments.
Depending on the type of loan, there may also be other perks. For instance, you might get to put down a lower down payment on a mortgage.
With a credit card, you may get a higher credit limit or a lower annual percentage rate (APR). Excellent credit may even get you special promotional 0% interest rates.
More opportunities in life
It’s tempting to dismiss credit ratings as nothing other than abstract personal finance metrics, but they’re linked to many vital aspects of life beyond auto loans and mortgages.
For instance, landlords and employers may sometimes review your credit score or history as part of a background check. Few things are more important than a job or a place to live, so credit scores are worth taking seriously.
Fortunately, it's possible to improve no matter what score you’re starting from.
How to get a better credit score
Now that you understand why improving your credit score matters, you’ll probably want to know how to get there. Whether you’re aiming to go from a fair to a good, very good or even exceptional score, the same advice applies. You just have to be more diligent on the following factors if you want a higher score.
Avoid missed or late payments
One of the best things you can do for your credit score is to avoid late payments (or missing a payment completely). After all, payment history is the largest factor in determining your credit score.
If you’re struggling to remember all your due dates, consider enabling automatic payments from your bank account so you no longer have to think about it.
Try not to close credit accounts
Another credit score factor is the length of your credit history — the longer, the better.
It might not seem like much can improve this factor, but there’s one thing you can do: Keep accounts open when possible (especially older accounts). You risk harming your average credit history length whenever you close a credit account.
Work on your credit utilization ratio
Your credit utilization ratio is the percentage of credit available to you that’s actually in use. The lower the ratio, the more creditworthy you seem to lenders because it shows you’re not overly reliant on credit and, therefore, likely to pay back what you borrow. In general, 30% is a good ratio to aim for.
If you struggle to keep your ratio low, consider paying your credit card early, before the due date. This way, the ending credit card balance reported to credit bureaus will be lower, which will lower your credit utilization ratio.
Avoid hard inquiries
There are two types of credit inquiries:
Soft inquiries, which don’t hurt your credit score
Hard inquiries, which can temporarily impact your credit score
Applying for new credit involves a hard pull, so avoid these unless you think you stand a good chance of acceptance.
Fortunately, most credit card providers offer soft inquiries before a hard inquiry, so you can determine if you’re likely to be accepted before taking the risk.
Go further than fair
Knowing the answer to what a fair credit score is might be a good start, but there’s no reason to stop there. With some tinkering and patience, a good credit score, or maybe even an exceptional score, could be within reach.
Two essential factors in improving your credit score are 1) ensuring you make your payments on time each month and 2) gradually paying off your debt.
If you’re paying off credit card debt but struggling to make on-time payments, Tally† can help. Tally is a credit card repayment app that manages all your payments in one place, meaning fewer late payments. It can also help you pay down debt more efficiently with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.