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What To Do If A Fair Credit Score Limits Your Credit Card Options – Forbes Advisor

What To Do If A Fair Credit Score Limits Your Credit Card Options
Written by Publishing Team

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Qualifying for a top-notch rewards credit card is a big goal that many people have set for themselves. According to the JD Power 2021 Credit Card Shopping Study, rewards are the most important feature influencing US credit card choices. This is likely because many of the best rewards cards have the potential to unlock valuable opportunities – from the ability to earn free travel to monthly statement balances to cold, hard cashback.

However, if you have fair credit, you may not be eligible for the credit card rewards you want. However, the good news is that even with fair credit, you may still have some solid credit card options available to you. Looking ahead, the right credit improvement plan can put you in a position to qualify for more attractive credit card rewards in the future.

What is a fair credit score?

The credit scores that most credit card issuers use to predict risk are developed by one of two companies – FICO® or VantageScore Solutions. Although both companies have developed multiple versions of their scoring systems over the years, most credit scores used by lenders feature a range between 300 and 850. (Note: some credit card issuers may use an alternative scoring range of 250 and 900.)

According to Experian, here’s what a fair credit score might look like:

  • 580-669 FICO POINTS
  • 601-660 VantageScore

Of course, when it comes to interpreting a credit score (i.e. excellent, good, fair, and bad), each lender makes their own calls. The same applies to qualification requirements for a minimum credit score. One credit card issuer may accept borrowers with a fair FICO score of 580 or higher. The following company may require you to have at least a score of 650 to qualify.

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Credit Card Options When You Have Fair Credit

Before applying for a new credit card account or loan, it is always wise to review your credit reports and scores to see where you stand. This information can guide you as you compare the available credit card options. And since every credit card request is a tricky credit inquiry, you don’t want to ramp up your credit withdrawals too much.

If you are in the market for a new credit card while your credit score is fair, one of the following options may be right for you:

1. Apply for credit cards to get fair credit

With a fair credit score, you likely won’t be able to qualify for the most competitive credit card offers from the card issuer. But you are in a better position than if you had bad credit.

Your choices may be more limited, but it is possible to find many credit card offers for customers with fair credit scores. Some credit cards in this category may offer limited bonuses and welcome bonuses. However, you will need to work on improving your credit score if your goal is to qualify for a premium rewards credit card in the future.

2. Consider a credit union credit card

Another potential source for fair credit cards is a local or online credit union. Credit unions are nonprofit financial institutions that are similar to banks. However, you usually must become a member before you can open an account or apply for funding.

In some cases, credit unions may offer attractive credit cards to consumers with fair credit scores. Therefore, it may be helpful to include credit union credit cards in your research as you compare your options.

3. Find the status of an authorized user

It’s no secret that credit cards for good credit and excellent credit tend to be the most compelling type of credit card offering. So, if you don’t want to settle for a fair credit card while you work on improving your credit score, you might consider becoming an authorized user of your loved one’s existing account.

There are many potential benefits of being an authorized user including the ability to:

  • Improve credit score. If a loved one adds you to a well-managed credit card with no late payment history and low credit utilization rate, the account may help when (and if) the card issuer asks credit bureaus to add it to your credit report.
  • Higher probability of earning rewards. Are you in a position to share a credit card with someone with whom you can also share rewards (eg spouse, parent, VIP, etc.)? If so, putting your spending on a solid rewards card that you are an authorized user of may make sense. Let’s say your spouse holds a credit card that earns 3% cashback in certain categories, but you can only qualify for a card with 1.5% cashback. You can get more money for your money by becoming an authorized user and sharing the most competitive rewards card so that your balance is in better shape.

Ways to improve fair credit score

Since your credit score has a significant impact on your overall financial life, it is wise to work towards earning the best score possible. But the process of improving a fair credit score may be a little different than building credit from scratch or rebuilding bad credit.

1. Review your credit reports and make a plan.

The best place to start any credit improvement journey is with a thorough review of your credit reports from Equifax, TransUnion, and Experian. Your credit score is based, after all, on the information in these three reports. So, if you want those numbers to move up, you’ll need to make changes to the underlying data that affects them.

When reviewing your reports, make a list of any weaknesses you discover. Here are some examples of potential areas for improving a credit score.

  • Using an elevated credit card can lower your credit score. But paying off your credit card balances may increase your credit score. You can also try adding a credit card debt elimination strategy to speed up or boost your efforts.
  • Consider your credit mix. FICO is based on 10% of your FICO® score based on a combination of account types on your credit report. If your credit report only shows open credit card accounts, adding a loan in installments into the mix, and vice versa, may help. If you’re considering applying for an installment account, a credit generator loan might be a good place to start. This type of account gives you the opportunity to build credit without taking on a lot of debt in the process.
  • Credit errors can harm your credit score. When negative information appears on your credit report, it can potentially harm your credit score. This fact is true whether or not that negative information is accurate. According to a June 2021 Consumer Reports survey, 34% of respondents found at least one error in their credit reports. If you discover errors in credit reports, it is important that you dispute them with the responsible credit bureau or creditor.

2. Consider an out-of-the-box approach.

Responsible use of credit cards has the potential to improve credit scores for many consumers. But if you already have a fair credit score, there is a chance that you have already gone through some of the initial steps for building credit, such as opening a secured credit card or a primary credit card. If you are looking for additional ways to improve your score, you may want to consider some ready-made strategies.

  • Trial batch: Experian Boost is a free service available from the credit reporting agency Experian. When you register for the Program, you give Experian permission to connect to your bank account or credit card account. Experian will then comb through your payment history to find eligible transactions – aka on-time payments to service providers, mobile providers, or streaming services. If you have eligible accounts, the program will add them to your Experian credit report and your score may increase in return. According to the Credit Bureau, 60% of Experian Boost users see their FICO® score increase. (Note: Experian Boost is not able to improve your credit score based on Equifax or TransUnion.)
  • Authorized user status: In addition to the above benefits, becoming a certified user may help you increase your average credit life. Credit scoring models like FICO and VantageScore take into account the average age of the accounts on your credit report. Older is better when it comes to your credit score. If you become an authorized user of an open credit card for a long time, there is a chance that your credit score will give you an extra boost.

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Improving credit takes time. And in many cases, going from a fair credit score to a good credit score is more difficult than going from a bad to a fair credit score.

As you climb the credit score mountain, remember to maintain the good habits that got you this far. On-time payments are critical to anyone who wants to earn and maintain a good credit score. It’s also wise to keep an eye on your credit card balances and how they affect your credit utilization rate. (Remember, a low-to-the-balance credit card is your friend.)

Finally, you may have to be patient. Over time and avoid common credit score mistakes, you should put yourself in a good position to see additional credit score improvements.

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