In order to be eligible for many credit cards and loans, you'll need to fall into what's considered the "good" credit scoring range of 670-739. Fortunately, most Americans are already in this category - with the average U.S. FICO score rising to 716 in 2021.
By contrast, a "fair"is any score between 580 and 669. While lenders may still approve you for credit in this range, interest rates will likely be significantly higher than those for borrowers with a good credit report.
If you're concerned about your credit score, there are several online tools available to help you improve it. Consider reaching out to a credit counseling service for a free consultation today.
If you improve your credit score from fair to good - or better yet, "excellent" (800 and up) - you are in a better position to be approved for mortgages, auto loans and other credit products with better interest rates, which can potentially save you thousands of dollars over time.
3 ways to boost your credit score fast
Whether you need to build credit or repair fair or bad credit, understand that it takes around three to six months of making good credit decisions to see a noticeable difference in your credit score. Think of credit building as a long-term game where good habits pay substantial dividends over time.
If you're looking to make improvements to your overall credit health fast, utilizing a credit repair service may be a good place to start. Use the table below to compare services and offerings.
Here are three other things you can do right now to repair your credit.
1. Get a credit-builder loan
As its name suggests, the purpose of a credit-builder loan is to help those with little or no credit history establish credit. With this loan, the money you borrow sits in the lender's bank account. You'll make monthly principal and interest payments, which the bank then reports to the credit bureaus.
Once you repay the entire loan over a specific term - typically between six and 24 months, per Experian - you'll receive the money from the account. You'll establish a positive payment history by making your payments on time each month, which can help you build credit.
2. Get a cosigner on a loan
As we've seen, your payment history heavily influences your credit score. Opening a personal loan, car loan or another installment loan and making timely credits can significantly impact your credit score.
If you can't qualify for a loan on your own, consider enlisting a cosigner with good credit. A cosigner may help you qualify for a loan with better interest rates and terms. Of course, you'll want to ensure the cosigner understands the bank will expect them to take financial responsibility for the loan if you fail to make your payments.
3. Become an authorized user
Another effective way to improve your credit is by becoming an authorized user on a friend's or family member's credit card account. You'll be authorized to make purchases with the card, although you don't need to have a card yourself to benefit. As long as the monthly credit card bill is paid on time, your payment history - and credit score - may be strengthened.
5 factors that impact your credit score
To understand how to build credit and achieve a good credit score, it's helpful to know how credit scores are calculated in the first place. Here's a breakdown of the factors that make up your credit score:
- Payment history: When lenders consider your credit application, they want to know how well you manage credit. That's why your payment history is the most important credit scoring factor, accounting for 35% of your FICO score.
- Amounts owed: Lenders view your debt as part of your credit utilization ratio - the amount of revolving credit you're using compared to your available limits. Your credit utilization percentage makes up 30% of your FICO score.
- Credit history length: As a general credit rule, the longer you successfully manage credit, the better. The three largest credit agencies - Equifax, Experian and TransUnion - take into consideration the ages of your oldest and newest accounts and the average age of all of your accounts. The length of your credit history accounts for 15% of your FICO score.
- Credit mix: High credit scorers tend to have a diverse mix of credit accounts, which could include a mortgage, auto loan, personal loan, credit cards, retail cards and other account types. The credit mix represents 10% of your FICO score.
- New credit: Applying for several credit accounts within a short time frame can signal a higher level of risk and have a negative effect on your credit score. New credit also makes up 10% of your FICO score.
How to build credit with a credit card
Credit cards offer one of the best opportunities to build your credit from fair to good. Consider these options that may help you demonstrate your ability to manage credit and make regular on-time payments.
Apply for a secured credit card
Arequires you to submit a cash deposit, which becomes your credit limit. The security deposit safeguards your bank by covering your purchases just in case you miss payments.
By making your payment by the due date each month, you'll strengthen your payment history. Consequently, your credit card issuer could upgrade your card to a traditional unsecured card in the future.
Consolidate debt with a 0% interest balance transfer card
Once your credit score is in the good credit range or better, you might consider getting a balance transfer card to consolidate and pay off your debt. Typically, balance transfer cards offer low or 0% interest rates for an introductory period - from six to 21 months. If you have a high-interest credit card or loan debt, it may make sense to transfer that debt to a balance transfer card. In most cases, you'll save on interest charges and pay off your debt much sooner.
Be aware that balance transfer cards usually come with a fee. Before signing up for any balance transfer card, run the math to ensure the savings you'll receive exceeds the balance transfer fee.
As a rule, don't apply for loans or credit cards you don't need. It usually doesn't make sense to pay interest when you don't have to. Improving your credit score should be an extra perk of using credit, not the primary reason.
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