What to Do When Your Credit Score Is Just “OK”

Not everyone has excellent credit — and yet so many of the ads for low-interest car leases, maximum-benefit credit cards and other attractive financing options require top-tier credit for approval. What are “average” people to do?

First, you should know what credit scores mean, then you should know what your credit score is.

Know the Scoring System(s):

There are actually several different scoring systems in place. Each of the “Big Three” consumer credit bureaus (Equifax, TransUnion and Experian) have their own scoring models. Therefore, you have more than one credit score.

You also may have heard of the Fico Score. It has become widely used as a single score used to evaluate credit worthiness. The Fico Score is actually determined by data from all three of the “Big Three” credit bureaus – plus Fico’s in-house predictive analysis.

Of all the scores in place today, the Fico 8 (soon to be Fico 9) is the most valuable one to know, since it’s used in to make more credit decisions than any other model. So, what – in general terms — are Excellent, Good, Fair and Poor scores to have?

Let’s look at it in terms of ranges:

Excellent = 750-900

Very Good = 700-749

Good = 660-699

Fair = 620-659

Poor = Under 620 (down to 250)

Know Your Score:

There are several easy ways to find out what your credit score is, and some of them are even free. For those willing to pay a monthly fee, there is MyFico.com. This is a very accurate, current read of your Fico Score, as well as credit information from up to three major credit bureaus. However, it does cost money to get this information.

As for free options, there are companies now that offer free access to scores and credit bureau information. We recently took a look at one of the bigger ones – Credit Karma – and were pleasantly surprised to find that they now offer both Equifax and TransUnion information and scores.

Use of that site is 100% free of charge, but you will have cards and loans offered to you, (since extending those offers is how the site makes money).

Another free option comes courtesy of credit card issuers, many of whom have signed up for “free credit score” programs. Of these, the Free Fico Score program is particularly valuable, since it gives you access to your Fico 8 Bankcard score. If you combine Free Fico with Credit Karma, you will have a lot of free access to your credit reports and scores.

“OK, So What If My Score Is Merely Fair”

Let’s say you’ve found out your credit score, and it’s solidly in the “Fair” category of 620-659? One important thing to know is that you CAN be approved for such things as auto loans and credit cards, but you will not be getting the very best rates. However, you should also not be paying the worst rates.

Another important thing to know: Fair credit customers are offered loans at a very wide range of interest rates. You will find that different credit issuers have very different ideas about what a Fair credit customer should be paying.

For instance, with auto loans there can be a difference of 5-10% APR in what the same Fair credit customer will be quoted by different credit companies, banks and auto dealer finance departments. Buyer beware.

So, if you are a Fair credit customer, please allow us to give you three pieces of advice:

Ask Your Credit Union First. Credit unions offer some of the best rates around on credit cards and auto loans. As not-for-profit institutions they have no incentive to push you into a high interest loan, even when you qualify for a better deal (unlike, say, auto dealer finance departments).

If you need a loan or credit card, go to your local credit union first.

Shop, Shop, and Shop Some More. Shop around for credit, and you will be shocked to find out how big the difference is between the best deal you’re offered and the worst. This is especially true for Fair credit customers who are trying to buy a car. So, don’t sign anything until you’ve shopped around for the best deal.

Work on Improving Your Score. This may mean putting off that big purchase for a while, but it may be worth it. Sometimes just getting your score up by 10-20 points can make a huge difference in the loans and credit cards you can get approved for.

The biggest factors influencing your credit score are On Time Payments and Credit Utilization. If you’ve been late on payments, your score is already suffering the results. Paying on time, over time, will really improve your score.

Perhaps the best thing you can do in the short term is to pay down debt, and lower your credit utilization. You should try to keep it below 30% — both in the aggregate as well as for each open credit account you have. This can mean spending several months (or more) paying down debt. However, doing to can really be worth it in the long run.