Fair credit, also called “average credit” is that gray zone between poor credit—and the subprime loans that come with it—an
d good credit, where the better credit deals are. You’ll eventually want to move up to good or even excellent credit. But until you do, you’ll have to dig to find the best personal loan deals available for your credit score range.
In this article, we’re going to try to do just that. It is possible to get a personal loan with fair credit, and it’s definitely possible to improve your credit.
The best avenues to get a loan when you have fair credit
Exactly where to get financing when you have fair credit is something of a balancing act. Fair credit means that you are floating somewhere between good credit and poor credit. How your credit will be considered will depend on the institution you apply with, and their own specific credit score requirements.
These aren’t direct lenders, but rather websites that give you access to dozens or even hundreds of different lenders across the country. You fill out a brief application, including the purpose of your loan request, and various lenders will make loan offers. That can save you a lot of shopping around.
A loan aggregator worth checking out is Fiona (formerly Even Financial). You simply complete a single loan request, and the lenders come to you. You can then select which lender will provide the best one for your needs. It will save you the trouble of needing to determine the credit requirements of each lender.
Banks and credit unions
How successful you will be with these lenders depends on your specific credit score. The credit score range of 580 to 669 is wide and covers a lot of people. Some banks and credit unions may be perfectly willing to make you a loan with a minimum score of 650 or even 620. But a credit score below 620 will be a problem.
Credit unions will generally be better than banks, since they’re nonprofit and member owned. Even so, it will help your cause to have a large savings amount with that institution, otherwise you may need to bring a cosigner.
Peer-to-Peer (P2P) lenders
For personal loans that are unsecured, these may be the best sources. Most will lend up to $35,000, which can be used for any purpose. That can include debt consolidation, medical expenses, financing a business startup, or even purchasing a car. Best of all, they offer financing for nearly all credit scores.
Loan sources to be careful of
app德扑圈官方网址home equity loans
These include app德扑圈官方网址home equity loans and app德扑圈官方网址home equity lines of credit (HELOCs). They’re excellent loan sources—if you have good or excellent credit. That’s because they are strongly credit score driven. If you’re at the higher end of the fair credit score range, say 640 to 669, app德扑圈官方网址home equity loans might be worth a try. But also remember you’ll be putting your house at risk, most likely for debts and obligations that aren’t related to the app德扑圈官方网址home itself.
These are more a consideration if you’re on the lower end of the fair credit score range. But you should avoid these entirely. Payday loans are tied to your paycheck, which is where the name comes from. They’re very short-term loans, secured by your next paycheck. You take a loan on that paycheck, at an interest rate that can be over 300 percent.
You also ize the lender to take an automatic debit from your bank account when your paycheck comes in. It may get you money now, but when your next paycheck comes you’ll be short again. That’s why most people who take one payday loan end up getting caught on the payday loan treadmill. It doesn’t end well for most borrowers.
Getting an auto loan with fair credit
If you have a fair credit, you probably don’t want to get a loan from a car dealer. They’ll almost certainly put you into a subprime loan. I know someone who was put into a six-year loan with a 23 percent interest rate by a dealer. That’s the last thing you need.
The best approach is to apply with your bank. An even better strategy is to use a credit union. Credit unions are member owned, and more likely to make loans that banks won’t. They won’t take poor credit, but they will consider fair credit with extenuating circumstances.
If your credit score doesn’t meet the bank or credit union standards, offer to do one or more of the following:
- Get a cosigner who has good or excellent credit.
- Make a large down payment. 20 percent or more could make a real difference because it lowers the lender’s risk.
- Buy less car than you can afford.
There’s with no standard auto loans source, which means it’s possible to get a decent deal by adjusting the terms.
Getting a mortgage with fair credit
Contrary to popular belief, it’s actually possible to get a mortgage with fair credit. Most mortgage lenders will provide prime level loan rates with credit scores as low as 620. Some will go as low as 600, and a few as low as 580.
Generally speaking, your best mortgage bet with fair credit is an FHA mortgage. They won’t accept poor credit, but they’re more lenient than conventional mortgages.
If you do apply for a conventional mortgage, you might get a better deal if you have some offsetting factors. These include the following:
- Making a large down payment—20 percent or more of the purchase price.
- Having only a small increase in your new house payment.
- Buy less house than you can afford.
- Get a cosigner who has good or excellent credit.
Any of these factors can enable you to get a conventional mortgage even with a low credit score. However, lenders won’t go below a 580 credit score, and not many will go below 620. Check with the lenders in your area that are known to be the most lenient with credit.
If you’re looking for a good site that aggregates the best mortgages online and presents you with the lowest rates, check out LendingTree.
LendingTree can help match you with the right lender based on your needs and credit quality.
Credit cards for people with fair or average credit
The difference between poor credit and fair credit isn’t always obvious with credit card lenders. What’s more, they but don’t typically publish their credit score requirements. That can turn the search for a decent credit card into something of a fishing expedition.
But below is a list of credit card companies known to provide cards for people with fair credit:
What we like:
1% cash back on all eligible purchases
No annual fee. Terms Apply
No security deposit required; and your credit score is not affected when you pre-qualify
- See if you Pre-Qualify in less than 60 seconds–without affecting your credit score. It's fast, easy, and secure.
- Get 1% cash back rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV. Terms apply.
- This is a fully functional, unsecured credit card–not a debit card, prepaid card, or secured credit card with deposit requirements.
- Credit One Bank evaluates every account for credit line increase opportunities. We'll let you know as soon as you're eligible for a higher credit line.
- Take advantage of free online access to your Experian credit score and credit report summary so you can track the key factors impacting your credit health. Terms apply.
- Zero Fraud Liability protects you if your card is ever lost or stolen. Rest easy knowing you won't be held responsible for unized charges.
- Access your account easily from your computer, smartphone, or tablet at CreditOneBank.com or the Credit One Bank Mobile App. You can make payments, see recent transactions, and update your account preferences all at the click of a button.
- Carry a card that makes you smile by choosing from over 20 unique card designs in Credit One Bank's card gallery. A fee may apply.
Credit One Bank® Unsecured Visa® with Cash Back Rewards charges an interest rate between 17.99% to 23.99% Variable, and even offers cash back rewards.
What we like:
Only average / fair / limited credit is required for approval
Be automatically considered for a higher credit line in as little as 6 months
No annual fee or foreign transaction fees
The Capital One® Platinum® Credit Card comes with cardholder benefits and an interest rate of 26.99% (Variable). You can increase your credit limit after making six on-time monthly payments.
Discover it® Student Cash Back
If you’re a student, the Discover it® Student Cash Back is perfect for you. It offers 5 percent cash back in different spending categories each quarter up to the $1,500 quarterly maximum each time you activate. Plus, unlimited 1 percent cash back on all other purchases. Also, since it is geared towards students, you can earn a $20 statement credit each school year your GPA is 3.0 or higher for up to five years.
What we like:
$0 – $99 annual fee
Easy pre-qualification process
Previous bankruptcy is OK
- Pre-qualification available with no impact to your credit score
- Previous bankruptcy OK
- Easy pre-qualification process with fast response
- Free online account access (mobile friendly)
- Protection from fraud, if your card happens to be lost or stolen
- Accepted at over 35 Million Locations Worldwide!
While there aren’t any fancy bells and whistles with the Indigo® Platinum Mastercard®, If you’ve had to declare bankruptcy and your credit isn’t great because of it, you may still be able to get approved. You can pre-qualify with no impact to your credit score.
Proceed with caution solutions
We’ve suggested adding cosigners in different loan situations. But be advised that’s not a risk-free proposition. Your payment history on cosigned loan will also affect your cosigner’s credit. Any late payments will be on their credit report as well. And should you default on the loan, the lender will pursue payment from your cosigner.
Either situation can result in a damaged or broken relationship. That can cost you a lot more than a few dings on your credit report. Avoid it by any means necessary.
Borrowing from family and friends
This should only be undertaken in an emergency situation, like a medical emergency. If you had trouble managing your debts in the past, you might have the same experience with a loan from family or a friend. Just as is the case with a cosigner situation, you can permanently damage an important relationship. This can happen if you are either slow with repayments, for you default on the loan altogether.
Common document requirements for a loan application when you have fair credit
Whether you are applying for a loan in a face-to-face for online situation, there are specific documents you’ll need to be prepared to supply.
These include the following:
- Your most recent pay stub and W-2(s) to document your income.
- Evidence of Social Security or pension income (award letter or 1099).
- Contact information for your employer (the lender will verify your employment directly).
- Copies of completed income tax returns for the past two years, if you’re self-employed or work on commission.
- Make, model and value of your car; VIN number if you’re applying for an auto loan.
- If you’re paying or receiving child support or alimony, list the amount you’re paying or receiving.
- Bank or brokerage statements, or even retirement account statements.
- Written explanations for credit problems, including documentation of extenuating circumstances (job loss, medical events, divorce, etc.).
Not all lenders will request all the above documentation, but you should be prepared to furnish it if they do. If you are applying for a loan with a bank or credit union, you should especially concentrate on providing credit documentation. If you can show that the source of your credit problems is extenuating circumstances, and that those circumstances are behind you, you may increase your chance of being approved for the loan.
When it’s not just about your credit score
Today’s culture is somewhat credit score obsessed. It’s almost as if you are your credit score. That’s not entirely true. Credit score isn’t the only credit factor determining whether or not you get a loan. For many lenders, the credit score is just a starting point. They also look closely at the factors that make it up.
A common obstacle for lenders are major credit derogatories. These include recent bankruptcies, foreclosures, judgments, and tax liens. It’s entirely possible that a credit score of 650 would entitle you to a prime interest rate on an auto loan, credit card, or mortgage. But if you have a major derogatory, the entire situation could change.
For example, if you’re applying for a mortgage, you must wait four years to apply before you’re eligible (two years with “extenuating circumstances”). If you had a foreclosure in your past, you must wait seven years (three years with extenuating circumstances, but also with restricted loan terms).
Even if your credit score is above the typical minimum mortgage requirement of 620, either of these events could preclude you from getting a loan.
Loan-specific credit issues
There are also derogatory events that are very specific to the type of loan you’re applying for. For example, let’s say you have a 650 credit score and you apply for an auto loan. If you had two 30-day late payments and a 60-day late on your current car loan within the past year, an auto lender might classify you as subprime—despite your credit score.
A similar situation could happen if you’re applying for a credit card. Once again, let’s assume you have a credit score of 650. But you’ve also had two small credit card balances charged-off within the last two years. Despite the fact that your credit score may be acceptable, you may still be declined for the card.
Why fair credit is credit purgatory
Credit scores are closely relied on in most lending activities. But as you can see from the information above, there are other factors beyond credit scores that can affect whether your credit is actually considered fair or poor. A fair credit score is no guarantee that a lender won’t decline your application either for major derogatory information, or loan specific credit issues.
This is the dilemma of a fair credit rating. The same is true with good and excellent credit ratings, but typically when your credit is in those ranges, you don’t have major derogatory credit. That’s more likely to happen when you’re in the fair range. In fact, the line between fair and poor credit can often be hard to determine—until you’ve actually applied for a loan and had your credit fully evaluated for lending purposes.
We can accurately put fair credit into two very distinct categories:
True fair credit
- A low credit score weighed down by too much credit, a short credit history, and/or a few older derogatory events (over three years old)
Circumstantial fair credit
- A low credit score with recent major derogatory events
In most cases, a person with the first type of fair credit will get a loan, albeit at a higher rate. But a person with the second type may be considered subprime, or have their loan application denied, despite having an acceptable credit score.
In short, fair credit isn’t a score range you want to linger in for too long.
How to move fair credit up to the next level
As I said earlier, fair credit isn’t a credit score range you want to linger in. On the other side of fair credit are lower interest rates, lower loan payments, higher loan amounts, and more incentives, like credit card rewards.
So, how do you move from fair credit up to the next level? First, here’s a few things to keep in mind:
- Recognize that improving your credit is a process. It can take months or years, so don’t expect miracles.
- Don’t use a credit repair service. First off, there are a lot of credit repair services that are completely bogus. Second, you’ll be charged for the service, and it’s not always cheap. Third, you may find yourself doing most of the work.
- The only one who can improve your credit is you. No credit repair service has a magic formula to make it happen, despite slick advertising.
Improving your credit is pretty basic, and requires the following steps:
Pay all your bills on time
If you have a history of late payments, put a stop to it right now. As time passes, and your on-time payments increase, so will your credit score.
Get a copy of your credit report, and look for errors
If you find any, dispute them with the creditors. Be ready to provide evidence of the errors. And make sure the creditor agrees to correct the information with all three major credit bureaus.
Pay off any past due balances
This includes collections, judgments, or amounts simply reported as past due. It won’t make the derogatory go away, but a paid collection is always better than an open one. Time will improve your score even more.
Pay off or pay down some credit cards
Next to payment history, credit utilization ratio is the biggest factor affecting your credit score. It’s the amount of outstanding debt you have on your credit limits. A high ratio (anything over 30 percent) will hurt your score. By paying down your credit card balances, you lower this ratio, and raise your credit score.
Don’t cancel paid credit cards
It will raise your credit utilization ratio and lower your score.
Don’t apply for new credit
New loans hurt your score due to the lack of payment history.
A lot of people have fair credit and still get loans and credit cards. But it’s not a range you want to stick with. Begin implementing the changes above as soon as possible, since it will be a while before you’ll see any major improvement. But once you do, you’ll be on your way to good, and eventually excellent, credit, and all the benefits they bring.