While a fair and average credit score is better than having no credit or bad credit, you should actively work toward improving your credit score if you recently checked your score and learned it is lower than you expected.
You can qualify for a variety of financial products with average credit, but you likely won't receive the best interest rates, rewards and terms since lenders pull your credit report and weigh your three-digit credit score during the approval process. The higher your credit score, the better chances you'll have to qualify for the best credit cards, mortgages and competitive loan rates.
Below, CNBC Select explains what is a fair and average credit score for FICO and VantageScore, how to improve a fair and average credit score and how to get a free credit report.
Credit score ranges vary based on two main factors: The credit scoring model used (FICO versus VantageScore) and the credit bureau (Experian, Equifax and TransUnion) that pulls the score. Below, you can check which credit score range you fall into, using estimates from Experian.
Credit scores are calculated differently depending on the credit scoring model used. Here are the key factors FICO and VantageScore consider.
Denials for credit
If you have bad or average credit (FICO scores below 670), you may have lower approval chances for credit cards and loans. This may impact some goals you're looking to achieve, such as getting out of debt. If you're in debt and considering debt-consolidation options, such as a balance transfer credit card, like the Discover it® Balance Transfer, you'll need good or excellent credit.
Less favorable loan and interest terms
While an average credit score can still allow you to qualify for credit products, you may be hindered by higher interest rates that can add up to lost money when you take out a mortgage or auto loan. And if you open a variable-rate credit card, you may receive an APR toward the higher range.
Let's take an example where two people, one with average credit and the other with excellent credit, apply for the same card with a 15.74% to 23.74% variable APR. The average credit cardholder receives a 23.74% APR while the cardholder with excellent credit gets a 15.74% APR.
Both cardholders accrue $5,000 in credit card debt and plan to pay it off after 12 months. Here's roughly how much interest each cardholder would accrue during the 12-month period:
Compared to someone with excellent credit, an average credit consumer would $230 more in interest charges for the exact same decision.
Plus, some the best credit cards for fair and average credit have annual fees, such as the Capital One® QuicksilverOne® Cash Rewards Credit Card with a $39 annual fee.
Limited credit card choices
Having average credit typically means you qualify for relatively no-frills cards with lower rewards rates or no rewards at all, such as the Capital One® Platinum Credit Card, which has no rewards program. And if you do qualify for a card with rewards, the rates aren't usually as competitive as some of the best cards for good or excellent credit.
For example, the Capital One® QuicksilverOne® Cash Rewards Credit Card requires fair or good credit and offers 1.5% cash back on all purchases with a $39 annual fee. In comparison, if you have good or excellent credit, you may qualify for the no annual fee Citi® Double Cash Card and earn 2% cash back: 1% on all purchases and an additional 1% after you pay your credit card bill.
Take note that even if your credit score falls within the fair and average range, there is no guarantee you will be approved for a credit card requiring fair and average credit. Card issuers look at more factors than just your credit score, including income and monthly housing payments.
More than seven in 10 Americans (77%) report feeling anxious about their financial situation, according to the Mind over Money survey by Capital One and The Decision Lab. But there are actions you can take to improve an average credit score and achieve your financial goals. Follow these tips to help raise your credit score.
Most card issuers provide free credit score resources that can help you track your progress toward good credit. And there are dozens of free credit score services available that offer your free FICO Score or VantageScore, regardless if you're a cardholder. Here are some popular free credit score resources.
Information about the Discover cards, Capital One® QuicksilverOne® Cash Rewards Credit Card, and the Capital One® Platinum Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.