What Is Considered 'Fair Credit' for a Loan in 2021?

Here's what it means to have fair credit -- and how it might hurt you.

There are plenty of reasons why you might need to borrow money via a personal loan. Maybe you want to renovate your home. Or maybe you have medical bills you want to consolidate.

If you're thinking about taking out a loan, keep in mind that the better your credit score is, the lower your loan's interest rate is likely to be. And, of course, the stronger your credit, the more likely you are to get approved for a personal loan in the first place.

But that doesn't mean you're out of luck if your credit isn't wonderful. In fact, there are personal loans for fair credit that are specifically suited to borrowers with average credit scores. To get the best rate possible when you have fair credit, you may want to take some additional steps, such as:

• Go through a pre-approval process to see if you qualify.
• Get a personal loan with a cosigner.
• Put down collateral to get a loan.

But what exactly does "fair credit" even mean? Here's what you need to know.

How credit scores are classified

FICO credit scores (the most commonly used scoring model) range from 300 to 850, but most people don't have a 300 or an 850. Rather, their scores fall somewhere in the middle.

Here's how those numbers break down, according to FICO itself:

• 300 to 579 = poor credit
• 580 to 669 = fair credit
• 670 to 739 = good credit
• 740 to 799 = very good credit
• 800 to 850 = exceptional credit

Meanwhile, some lenders use VantageScore, an alternate scoring model. Here's how different credit scores break down under this system:

• 300 to 499 = very poor
• 500 to 600 = poor
• 601 to 660 = fair
• 661 to 780 = good
• 781 to 850 = excellent

As you can see, there's a slight difference between what FICO and VantageScore consider to be fair credit. FICO gives borrowers a little more leeway in that scores in the upper 500s are considered "fair" rather than "poor." VantageScore, meanwhile, has a slightly lower threshold for "good" versus "fair."

Ultimately, though, both scoring models are similar, and if your credit score falls into the lower-to-mid-600s, you'll be considered an applicant with fair credit. This doesn't mean you won't get approved for a loan. What it does mean, though, is that it won't be as easy to get a good interest rate for a personal loan as it would be for someone whose credit is good, very good, excellent, or exceptional.

How to raise your credit score

If your credit score is already in the mid-600s, you may be right on the cusp of having good credit instead of fair credit. And that could work to your advantage via a lower interest rate when borrowing money. If you want to bump your credit score into that category, you can do so by:

• Paying incoming bills on time to improve your payment history
• Paying off some of your existing credit card debt to lower your credit utilization ratio
• Checking your credit report for errors and correcting those that could be hurting your score, like outstanding debts associated with your account that aren't actually yours

The good news is that there are plenty of loan options available for borrowers with fair credit. But you also don't have to get stuck in that category. With time and effort, you have the power to raise your credit score -- and make borrowing more affordable for yourself in the future.