Question 1

What’s a fair credit score?

Accepted Answer

A credit score that falls within a specified range set by credit scoring models is a “fair credit score.” A fair score is above the “poor credit” range but below “good credit.” One of the most widely used scoring models is called a Fair Isaac Corporation (FICO®) Score. 90% of top lenders use FICO® Scores. With a fair score, you may not qualify for a high loan amount, the best credit terms, or certain credit cards.

Question 2

How fair credit scores are determined

Accepted Answer

Scoring agencies calculate your score using the information on your credit report. Your credit report information comes from your credit activity. Your credit card issuer or financial institution reports your activity to credit bureaus. Each credit bureau (also known as a “credit reporting agency”) creates a credit report based on your activity, like each monthly payment you make and your credit card balance. The information from your credit report determines your credit score. Each credit card issuer and credit reporting agency may prioritize different aspects of your credit file. But the following factors shape your FICO Score. • Payment history—35%: Payment history is the record of whether you’ve paid your debts on time. • Amounts owed—30%: Amounts owed, or your credit utilization ratio, is the total outstanding debt on your revolving accounts compared to your total available credit. • Length of credit history—15%: The length of your credit history is how long you’ve been managing debts, including loans and credit cards. • New credit—10%: Each new credit application triggers a hard credit inquiry, which may hurt your credit score. • Credit mix—10%: Credit mix is the balance of revolving and installment debts you’ve managed. Your score changes as you continue to use credit. You might have a score in the fair range today, but you might reach a good credit score after a few months of responsible credit use. Or, on the other hand, a few bad credit choices may leave you with a poor credit score. Also, keep in mind that some lenders may share your credit history with each major credit bureau, but others may share your activity with just one or two of them. That means your credit scores and credit reports may differ across the credit bureaus based on the information they’ve received.

Question 3

Why good credit scores are important

Accepted Answer

Lenders view your credit score as an indicator of your financial capability. The difference between a fair credit score and a good credit score may determine the terms of a new credit account. Fair credit scores may prevent you from being approved for new bank loans, mortgages, or lines of credit, like credit cards. Or a lender may approve your credit application, but offer you a lower credit limit or loan amount, or a higher interest rate than you’d receive with a higher credit score.

What is a Fair Credit Score?

Key Takeaways

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