What is Fair Credit?

by Victoria Lee Blackstone ; Updated May 21, 2018
What is Fair Credit?

Your credit rating is a vital part of your financial portfolio. When a credit bureau assigns you a score, based on data such as your payment history, amount of debt and credit limits, potential lenders consider this score before extending credit to you. Some prospective employers and landlords may also review your credit score before making hiring or rental decisions. Although there are numerous credit bureaus and various scoring models, the Consumer Financial Protection Bureau (CFPB) notes that lenders most often use FICO® scores, developed by the Fair Isaac Corporation.

What is Fair Credit?

Based on the FICO credit scoring scale, a “fair” credit rating falls between 580 and 669 on a scale from 300 to 850. This grade includes approximately 20 percent of U.S. consumers and classifieds them as “subprime” borrowers. Typically, because of their less-than-stellar credit rating, subprime borrowers must pay higher interest rates than borrowers with a higher credit rating. Lenders impose this higher interest rate to offset the risk they take by extending credit to subprime borrowers.

What Is Considered a Good Credit Score?

The FICO scoring scale rates a “good” credit score as falling between 670 and 739. This category includes approximately 21 percent of U.S. consumers, of whom only 8 percent become seriously delinquent in their financial obligations. FICO also has another “good” credit category, classified as “very good,” which includes scores that fall between 740 and 799. This category encompasses 25 percent of U.S. consumers to claim the biggest piece of the FICO scoring-scale pie. Lenders typically offer interest rates that are better than average to these applicants.

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What Is Considered a Poor Credit Score?

In the lowest rating on the FICO scale, a “very poor” score falls between 300 and 579, representing 16 percent of U.S. consumers. Applicants in this category may not be approved for credit; if they are, they often have to pay fees, deposits and higher interest rates than consumers with higher credit scores. Sometimes, a poor credit score is a “false positive” because of incorrect information that may appear on a consumer’s credit report.

Tips

  • By federal law, the Fair Credit Reporting Act (FCRA) gives you the right to get free copies of your credit report. You can request one free copy every 12 months from each of the three largest nationwide credit bureaus – Equifax®, Experian® and TransUnion®. Visit AnnualCreditReport.com or call 877-322-8228 to order your copies. The Federal Trade Commission (FTC) notes that this website is the only authorized site under the federally mandated free credit report program. Other websites that claim to provide free credit reports under this program are imposters.

Credit Tips and How to Raise Your Score

The Federal Reserve Board and Experian offer tips for how you can raise your credit score, including:

  1. Pay your bills by their due dates to avoid late payments. Late payments are not only recorded on your credit report, but they also have the potential to lower your credit score. Experian notes that how you make payments on your credit card and loan accounts is the habit that’s the “most influential” toward building a good credit rating.
  2. Maintain the outstanding debt on revolving credit accounts, such as credit cards and home equity lines of credit, below your maximum limit. If you continuously max out these types of accounts, your credit rating will suffer.
  3. Make new credit applications only occasionally. If you frequently apply for numerous credit accounts, your credit score can slip.
  4. Order your three free credit reports each year. You’ll be able to monitor your financial activity and identify any incorrect data, which can lower your credit score. If you see any errors, contact the source that reported the information, such as your mortgage company, bank or credit card provider. If the error is not resolved, you can open a dispute by contacting the reporting credit bureau and by filing a complaint with the CFPB by visiting ConsumerFinance.gov/complaint or by calling 855-411-2372.
  5. Continue to build your credit score over time. If you have a short credit history, you won’t score as high as someone with many years of diligent credit-building under her belt. But you can make the most of a short credit history by making timely bill payments and keeping outstanding debt to a minimum.

About the Author

Victoria Lee Blackstone is a horticulturist and a professional writer who has authored research-based scientific/technical papers, horticultural articles, and magazine and newspaper columns. After studying botany and microbiology at Clemson University, Blackstone was a University of Georgia Master Gardener Coordinator. She is also a former mortgage acquisition specialist for Freddie Mac in Atlanta, GA.

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