Every US citizen who has used lending is assigned a score by the Fair Isaac Corporation, or FICO. One of the categories on its scale is known as “fair credit”. It encompasses the 580-669 range. If you look at the breakdown, you will see that this level is inferior to “good credit”. Yes, a fair total is not the best result. Why do consumers get it, and how can you upgrade their level?
Your score is a vital indicator. It is used by different types of institutions to compare applicants based on creditworthiness. You can be sure your total is considered by lenders, insurance companies, landlords, and recruiters. It affects many spheres of life, so a higher position on the FICO scale opens many doors.
How Scores Work
Like VantageScore, the methodology is based on a scale from 300 to 850. This is broken down into several segments, with “very poor” and “fair” preceding “good”, “very good” and “exceptional”. Eight hundred is enough to access the best conditions and services. The assessment is based on the reports compiled by the nationwide bureaus.
According to the Experian bureau, around 17% of US citizens fall within the category. These consumers should improve their position to save money and become more trustworthy in the eyes of institutions. This may be achieved by repairing or rebuilding the score, depending on the accuracy of the reports.
Repair is based on formal disputes to remove false damaging information. Check the latest credit repair.com review on Credit Fixed to see how this works. Rebuilding implies working with different components of the FICO assessment, such as the size of total debt. The strategy depends on the goals — for example, you may need a higher credit score to buy a car.
Applicants from the “fair” category are viewed with suspicion. The level affects the conditions and accessibility of credit services, be it an auto loan, mortgage, or credit card. The lower your level in the hierarchy — the higher the interest rates. If you do get approval, borrowing is more expensive than for someone from the top.
Benefits of Better Scores
Rising in the system is important for your financial future. Improvement is attractive for millions of people. Here are some of the advantages.
- The interest rates on different types of services will be lower, which means borrowing will get cheaper.
- With lower rates come lower payments. Meeting the obligations every month will be easier.
- You will unlock better conditions on cards, including zero interest, deals, and rewards.
- Renting an apartment or house will be easier, as the landlords will perceive you as a more responsible tenant.
Why Scores Fall
As the total is based on the report, what exactly affects it? The FICO methodology considers five aspects of your borrowing behavior. Each of them has a specific influence on your status. Here is the breakdown:
- prior payments (35%);
- the overall amount owed (30%);
- age of the records (15%);
- new accounts (10%);
- credit mix (10%).
Note that different assessment methods rely on different components, although FICO and VantageScore are quite similar. Most commonly, unfavorable totals are observed as a result of poor budgeting. For example:
- You may have missed payments in the past. This is the most damaging type of information, as it defines the biggest chunk of the score. As a rule, lenders report late payments 30 days after the due date.
- Eventually, failure to pay results in collections, defaults, bankruptcies, and civil judgments, which tarnish the total for 7 years (Chapter 7 bankruptcies linger for 10 years).
- You may have used too much of your limits. Maximizing credit cards is a terrible idea, as it brings the utilization ratio to 100%. Meanwhile, experts recommend using no more than 10% of your total limits.
- If you have little experience with credit, your history is very short.
- Borrowers who use only one or two types of services have a poor credit mix. This factor, which is responsible for 10% of the result, reflects your ability to manage different types of obligations.
- You may have acquired too much debt.
- You may have submitted too many applications within a short period. Rate shopping is allowed, but requesting different types of lending has a negative effect, as it makes you look like someone desperate for cash.
How Can I Improve My Credit Score?
If your score has fallen unfairly, fix the reporting errors yourself or hire experts. Repair is based on the stipulations of The Fair Credit Reporting Act, which obliges the bureaus to remove any information they cannot verify. To open a dispute, you need to find evidence and make copies of the documents to back up your claim. A template is available on the website of The Consumer Financial Protection Bureau.
Alternatively, find a repair company in your state. The professionals will find inconsistencies in your records, prepare evidence and dispute them formally on your behalf. This saves time, as you do not have to navigate the laws or deal with formal correspondence. Every dispute letter launches an internal investigation that lasts for 30 days. If the bureau accepts the changes, you will get a copy of the amended report free of charge.
When the fair score is accurate, there is nothing to fix. Instead, look at your borrowing patterns to see which elements of FICO pull the total down. For example, you may need to lower utilization by paying off some balances, extending the limits, getting a new card, or becoming an authorized user. Gradually, your status will improve, unlocking better conditions for different types of services.