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How to improve your credit score from fair to good

Fair credit score report with pen and calculator; document and the report are mocked-up
There are steps you can take to improve your fair credit score to a good one.  Getty Images/iStockphoto

While credit scores are important tools to help you determine your financial health, they also can make a significant difference when it comes to getting approved for credit cards and loans. In order to be eligible for these various items (and to get more favorable interest rates), you'll likely need to have a "good" credit score.

A "good" credit scoring range is around 670-739. The good news is that the average U.S. FICO score rose to 716 in 2021, so most Americans are already in this category. But it's not uncommon to have a score slightly below that. A "fair" credit score falls between 580 and 669. While lenders may still approve you for credit in this range, interest rates will likely be higher.

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.

How 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, 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.

Factors that affect 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. If you don't already know your credit score, get a free online report now.

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

secured credit card requires 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.

Check your credit report

While these are all important steps to obtaining a higher credit score, it's first important to know where you even stand. A credit report will provide you with a detailed history showing any accounts that are active, ones in which you are listed as an authorized user and more information. Read through the report carefully to make sure it's complete and accurate. Any erroneous or outdated information on a credit report can have negative ramifications so it's important to make sure it's accurate. In particular, look for:

  • Loan amounts and balances
  • Late payments
  • Accounts sent to collections
  • Length of accounts (e.g. how long you have had a credit card with a company)
  • You payment history

Remember, when you apply for credit lenders will be looking at this report. You want to make sure it's fair and that it doesn't harm the credit you're building. Request a free copy of your credit report today to see how you appear to a lender.

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