Credit scores often feel like one of the most confusing aspects of personal finance. Many people have opinions on how they think credit scores work, yet many of those opinions aren’t correct. Credit scoring is frequently misunderstood to the point consumers have no idea what to believe.
Understanding what a fair credit score is, how it can impact you, and how you can improve it are all key things people with a fair credit score should know. The problem is credit scoring is secretive.
While calculating the scores is an exact science, the calculations behind the scores aren’t public knowledge. In a sense, interpreting credit scores is an art. To set the record straight, I’m going to provide the information you need.
What is a fair credit score?
First, a fair credit score isn’t an exact number. A fair credit score usually falls within a range. The problem is, that range varies depending on the particular credit scoring method used and who you ask. That’s right, you have more than one credit score. You could have more than you’d imagine.
So, we must talk in generalities to define a fair credit score. Thankfully, you can use some rules of thumb to determine if you have a fair credit score or not. Two major credit scoring companies and models exist. They are FICO and VantageScore
What is a fair FICO score?
Experian, which allows you to add phone and utility payments to your credit report with Experian Boost™, says a fair FICO credit score falls in the range from 580 to 669. This is above the very poor credit score range, which is the worst possible, and the good credit score range, the middle score category.
To give you a better idea of where a fair credit score falls into the big picture, here’s a quick chart highlighting score ranges. Remember, these ranges may differ slightly depending on who you ask and what they’re using the score for.
Credit score category Credit score range
Very poor 300 to 579
Fair 580 to 669
Good 670 to 739
Very good 740 to 799
Exceptional or excellent 800 to 850
What is a fair VantageScore?
VantageScore is another major credit scoring company. According to Capital One (the bank behind the credit education and reporting tool CreditWise), a fair VantageScore falls in the 500 to 600 range.
Here’s a quick table showing you exactly where a fair credit score fits within the VantageScore model. Keep in mind, this range is for VantageScores 3.0 and 4.0. VantageScores 2.0 and prior used a different numerical scale.
Credit score category Credit score range
Very poor 300 to 499
Fair 500 to 600
Good 601 to 660
Very good 661 to 780
Exceptional or excellent 781 to 850
How credit scores are generally determined
The exact science behind credit scoring isn’t public knowledge, but general information is available. There are some solid facts you should know about the process, though.
Your credit scores are calculated based on the information in your credit report. You have a separate credit report at each of the three major credit bureaus, Equifax, Experian, and TransUnion. These companies work separately and do not share information, so each of your three credit reports may differ.
Essentially, each credit scoring model can have three different scores. You can have one based on each major bureau’s credit report. To make matters even more complex, you can have different credit scores for each credit scoring company’s various models. This results in a large number of possible credit scores based on the same three credit reports.
How FICO scores are determined
FICO credit scores seem to be more popular than VantageScores and their credit scoring factors are more widely known. It’s important to realize that FICO has a wide variety of credit scoring models.
Each model weights different factors to develop a credit score that fits a lender’s particular needs. For example, the elements used to determine your likelihood of paying your car payment on time are different from those used to determine if you’ll pay your credit card bill.
That said, FICO provides some general guidance of the weighting of their credit scoring factors overall. This information can help you determine why your credit score is what it is and how to improve it. Here are FICO’s credit scoring factors.
Payment history (35%)
The most significant part of your FICO credit score is your payment history. In a way, this is nice. If you simply make all of your payments on time, you’ll max out this portion of your credit score.
People that don’t make all of their payments on time should make them as quickly as possible. The length of time a payment is overdue is factored into this scoring factor. The amount due that is late matters, too.
If you have late payments, work to establish an on-time payment history as soon as possible. The time that has passed since your more recent delinquency factors into this part of your score.
Amounts owed (30%)
The second biggest factor is the amount of debt you owe. This doesn’t consider your income or debt-to-income ratio at all. That’s because income is not part of your credit report.
What it does factor is:
- The amount of debt you owe across all accounts.
- The amounts owed on different types of accounts (such as credit cards vs. personal loans).
- How many of your accounts have balances.
- Your credit utilization ratio on revolving accounts (credit cards).
- How much you owe on installment loans compared to the original loan amount.
Ironically, not owing any debt doesn’t maximize this scoring factor. FICO’s data shows that people who have a small amount of debt are more reliable at making payments than people with a zero credit utilization ratio. A rule of thumb to help you stay on track is keeping your credit utilization ratio below 30%.
This doesn’t mean you should carry a balance on your credit cards, though. That’s a myth. Instead, you simply have to let your credit card statement generate with a balance on it. Then, you pay off your credit card in full during the grace period to avoid interest charges.
Length of credit history (15%)
You can’t go back in time and change your credit history’s length, but it accounts for about 15% of your FICO scores. Specifically, this looks at:
- How long your accounts have been open.
- Your oldest account.
- How long since you’ve last used the account.
- How long some specific credit lines have been open.
Keeping your credit lines active and increasing your accounts’ average age may help this part of your credit score. Also, keeping your oldest line of credit open may help, too.
New credit (10%)
Whenever you apply for new credit, a hard inquiry may be placed on your credit report. If it is, it may cause a temporary negative impact on this portion of your credit score that accounts for roughly 10% of your score.
The good news is that negative hit usually decreases in impact over a few months. Multiple inquiries shopping for the same loan type may only count as one inquiry depending on the credit scoring model used. Avoid applying for several new accounts at once as this could negatively impact your credit score.
Credit mix (10%)
Finally, credit mix accounts for the last 10% of your FICO credit score. This part of your score looks at the types of credit accounts you have on your credit report.
Types of accounts include revolving accounts, such as credit cards, and installment loans, such as student loans, auto loans, and mortgages. There isn’t much you can or should do to impact this part of your score other than keeping your overall debt under control.
How VantageScores are determined
VantageScore isn’t as popular as the FICO score, but they’re still used frequently. Many free credit scoring websites display users’ VantageScores instead of FICO scores because they’re cheaper to access.
Unlike FICO, VantageScore doesn’t assign percentages to each scoring factor. Instead, they list them in order of influence. Here are VantageScore 4.0’s five credit scoring factors
Total credit usage, balance, and available credit – extremely influential
The most influential factors in your VantageScore 4.0 credit score are your total credit usage, balances on your accounts, and credit available on your accounts. VantageScore says a tip is keeping your revolving balances low. Particularly, they say under 30% of your credit limits.
Credit mix and experience – highly influential
Next in their scoring factor, VantageScore says having various account types over time helps your score. These include accounts such as credit cards, auto loans, and mortgages.
Payment history – moderately influential
At only moderately influential, your payment history still matters with VantageScore. Making on-time payments is key to this portion of your score.
Age of payment history – less influential
The age of your credit accounts matters in the VantageScore 4.0 scoring model as well. VantageScore says that consumers with higher scores tend to have accounts, such as credit cards, in good standing for longer periods than those with lower-scoring consumers. They suggest not closing your older accounts.
New accounts – least influential
The least influential factor in VantageScore 4.0’s scoring model is opening and applying for new accounts. Still, it impacts your score. VantageScore says not to open too many accounts too quickly.
Why you may have a fair credit score
Understanding why you may have a fair credit score can vary from person to person. The first thing you should do is take a look at your credit report. Once you have your credit report in hand, you can look for negative factors that may influence your credit score.
The most significant negative factor for FICO scores is your payment history. Late payments are typically easy to find. Past that, the amounts you owe relative to your credit limits are also a big factor. If you have credit utilization ratios above 30%, that may be another reason for a less than ideal credit score.
Some factors are a bit out of control. While you can influence your length of credit history by not closing old accounts, you can’t magically make a 22-year-old have a 35-year-old credit history. Similarly, a person that never went to college won’t have a student loan to add to their account mix. These factors can only be influenced over time as you naturally use credit. Don’t go out of your way to unnaturally influence these factors.
How many credit scores are there?
It’s difficult to determine the exact number of credit scores you may have. While there are three major credit bureaus and two major credit scoring model companies, smaller and less-known versions of each exist.
In general, the three major credit bureaus each have a credit report for you. That means for each version of a credit scoring model in existence, you can have three different scores. You’d have one based on each bureau’s credit report file.
FICO says 19 FICO scores are most commonly used by lenders but doesn’t disclose the total number available. They say you can view up to 28 total scores if you subscribe to their myFICO credit scoring service. Surprisingly, the same scores aren’t used across all bureaus. Instead, one bureau may use FICO’s Auto Score 2 while another uses FICO’s Auto Score 5. The latest version appears to be FICO’s Auto Score 8, though.
Overall, the regular FICO Score 8 is most widely used. However, they also have specific auto lending scores, credit card scores, mortgage scores, and newly released scoring models not widely used yet.
VantageScore appears to keep things simpler. They display four main scoring models on their website. They are VantageScore 1.0 through VantageScore 4.0.
Will my credit score look the same for every lender?
Your credit score won’t look the same at every lender for a wide variety of reasons, although it is technically possible. First, you must know which credit scoring model a lender is using and which bureau’s credit report that score is using. If both of these choices are the same and the scores are pulled simultaneously using the same data, your scores should be the same.
That isn’t common, though. With three major credit bureaus and several credit scoring models to choose from, it’s unlikely your scores will be the same. Instead, one lender may use a version 5.0 credit score from Experian, while another uses a version 4.0 credit score from TransUnion.
Even if lenders use the same model and bureau, the reports may be pulled at different times. If your credit report has changed in any way between the scoring pulls, you may have different credit scores.
Why does my credit score matter?
Your credit score matters for several reasons, but the biggest one is the amount of money it can save you. People with higher credit scores generally get lower interest rates and better terms on the loans they take out.
Let’s take a quick example of a 30-year fixed-rate mortgage. If you had an excellent 780 credit score, you might qualify for the best rates. Someone with a fair 640 credit score would likely receive a much higher interest rate.
For this example, the 780 score person gets a $200,000 mortgage with a 2.821% APR. The person with a 640 credit score receives a mortgage with a 3.864% APR. You’d think this is a slight difference, but it adds up to quite a bit of money over a 30-year mortgage. The person with the 640 credit score would end up paying $41,469 more in interest payments over the life of the loan. That’s more than many new cars cost.
Your credit score can also impact other areas of your life. Landlords may check your credit as part of the application process. If your score isn’t high enough, they may decide against renting to you.
Ideas to help build your credit score from fair to good
First, your credit score and credit file are unique to you. Due to the complexity of credit scoring, no one can guarantee what will help or hurt your credit score. You may be able to follow some rules of thumb to improve your credit score, though.
One important thing to realize is your credit scores are all based on your credit reports. You can view your credit reports for free using AnnualCreditReport.com, which the federal government mandates. If something is incorrect on your credit report, you can dispute it to get it corrected. Fixing erroneous information that negatively impacts your credit score can be a quick way to improve your score.
After that, it’s about making smart credit decisions. Here are a few ideas that may help.
- Make your payments on time. If you must make a late payment, make it as fast as possible after it is due.
- Keep your credit utilization low, ideally less than 30%.
- Keep accounts open if they don’t have annual fees to lengthen your credit history.
- Have a mix of credit account types on your credit report, but don’t take out new types of debt just to satisfy this factor.
- Avoid applying for new credit unless you need it.
Understanding credit scoring can be complicated. Depending on the credit scoring model used, a fair credit score can vary. FICO’s fair credit score range is commonly cited as 580 to 669 and VantageScore’s models list a fair credit score as 601 to 660.
A fair credit score isn’t the worst category you can fall into, but it’s far from the best. Understand how credit scores work to figure out how you can start improving your credit score. Free credit scoring education tools, such as Credit Karma, may make this a bit easier.