The Big Difference Between Fair and Good Credit

While it's widely understood that better credit equals more opportunity—especially when seeking financing for a massive purchase, such as a home—recent studies have shown that even the most financially savvy consumers are a little confused about credit—what impacts a score, what causes it to change, and what's the magic achievable number, (to name a few things)?

While a 620 FICO, considered "fair," is the minimum score to secure a 2021 conventional home loan that follows the standards set by Fannie Mae and Freddie Mac, the variance between good and fair credit can make a major difference when it comes to locking in a good rate.

According to Forbes contributor Chelsea Brennan, securing a credit score that is just good enough to secure a mortgage loan, it can still mean tens of thousands of dollars more in interest costs over the life of a loan.

"So, before submitting that paperwork, be sure to understand how your score affects the long-term cost of your home," she suggests to readers.

Low-credit-score borrowers aren't alone in paying inflated rates.

"The difference between a good and great score can still add up over the life of a loan," Forbes reports. "Assuming nothing in a mortgage application changes except the credit score, someone with a score in the 680-699 range would have a mortgage rate approximately 0.399 percentage points higher than a person with a 760-850 score. That’s a difference that may sound minuscule but isn’t."

Indeed, in the span of 20-years, someone with a 680-699 score will still pay $20,000-plus more in interest on a $244,000 mortgage than a person with a high score, Forbes reported.

The researchers at WalletHub have published extensive data on consumer credit, including a report examining the difference between good and fair credit.

A fair credit score typically means any score in the range of 620-659. According to WalletHub data, some 13.5% of people have fair credit. The average person with fair credit is 47 years old and has an annual income of $54,000 per year.

In addition to a score in the same range, people with fair credit tend to share other traits. For example, they usually have less than $5,000 in available credit.

Here, WalletHub breaks down details a lender might weigh when considering a loan applicant:

Category	Score Range	% of All Scores	Average Age	Average Income	General Qualifications
Bad	300-619	31.08%	52	$45,797	Behind on paymentsHigh credit utilization 60+ days late on payment in last 90 days Bankruptcy in last 3 years
Fair	620-659	13.47%	47	$53,947	1+ credit cards/loansLess than $5k in credit lines 60+ days late on payment no more than once in last 12 months
Good	660-719	17.33%	45	$58,740	3+ years of credit history$5k+ in credit lines Not 60+ days late on payment in last 12 months
Excellent	720-850	38.12%	41	$64,269	5+ years of credit history$10k+ in credit lines Never 60+ days late on payment Never declared bankruptcy

Fair and average credit, by the way, are not interchangeable terminolgies. The average credit score is 669, according to WalletHub data, and that is considered good credit.

While the difference between fair and good could be a point or two, WalletHub reiterates the idea that good equals perks that aren't seen so frequently with fair.

"Lenders naturally give more favorable terms to people who demonstrate more responsibility as borrowers," notes WalletHub financial writer Adam McCann.

A panel of financial pundits for a seperate report recently offered insight related to improving one's credit.

Ann Holmes (Assistant Dean, Finance and Administration at University of Maryland's College of Behavioral and Social Sciences) says consumers who are able to improve their "utilization rate" could experience quick positive effects.

"There are only two ways to do this," Holmes said. "Pay down your outstanding balances to as low as possible and/or call your credit card company and ask them if they would consider increases the amount of your available credit. That will impact your credit score quickly."

While the experts agree patience, vigilance, and time is necessary to turn bad credit good, inching up fair credit to good could go a bit more quickly, if consumers are willing to do a few additional things such as disputing credit report errors/fraud ("it’s important to regularly set aside some time to make sure everything on your report is valid. Removing mistakes and reporting fraud when you find them are easy ways to raise a lower score," WalletHub reports), paying on time, every time, and reducing debt.

"Once you establish a credit line, making on-time monthly payments and keeping the debt utilization ratio below 30% is the fastest way to build a positive credit report," Financial Coach Shanell Foster told WalletHub.

WalletHub reminds readers that not all lenders define fair credit the same way. Some may have higher standards, for example, starting the fair credit range as 640 and ending it at 699.

All the data is available at WalletHub.com.