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Bad Credit vs. Fair Credit: What’s the Difference?

Credit Score, Personal Finance
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Bad Credit vs. Fair Credit: What’s the Difference?

If you’re not watching your credit score closely, you may not notice if it goes from fair to bad credit. When it does, however, better interest rates and more desirable financing options will be further out of reach.

Here’s what you should know about the differences between bad and fair credit.

The basic difference: your credit score

Credit scores are an attempt to sum up your credit risk in a number. Both FICO, the most commonly used credit scoring model, and its competitor, VantageScore, use a range from 300 to 850.

If you have fair credit, your score will be between 630 and 689. If it’s bad, it’ll be somewhere below that 630 mark. But that’s just the general rule. Lenders evaluate scores differently and standards can vary, whether you’re applying for an auto loan or a credit card. That means that some lenders could deem a score of 620 as acceptable, but others might choose not to extend credit at that level.

Higher interest rates, fewer opportunities

The higher your credit score, the lower your interest rates. So if you have fair or bad credit, your interest rates are already relatively high for all kinds of debt, from credit cards to mortgages.

In addition, your opportunities to build your credit may be limited because lenders see you as risky and are less likely to approve your applications. Bad or fair credit affects more than just lending — it can also determine your eligibility for a cell phone or an apartment.

Start the rebuilding process

If you have bad or fair credit, you’ve probably made some mistakes along the line that are now affecting your overall credit history. Missed payments, repeated inquiries, short credit history, collections accounts, or a high credit utilization ratio can all tarnish your score.

To start restoring your credit, request and review your free reports from AnnualCreditReport.com. Because erroneous negative information can give you a lower score than you deserve, you’ll want to dispute those errors.

There are bad-credit credit cards designed specifically for people who wish to build their credit. No matter which credit-building route you take, remember the No. 1 rule of having a good score: Pay all bills on time.

This article was updated April 24, 2017.