This guest post was written by Jason Bushey. Jason is a full-time personal finance blogger, and he runs the day to day operations at the credit card comparison website Creditnet.com.
So you’ve got fair credit.
First and foremost, it’s nothing to be ashamed of. Consumers’ credit scores are determined based on a number of factors, and while some may have a spotty spending past, others might have just one blemish on a limited credit profile that’s derailed their score.
If you have fair credit and you’ve applied for a credit card, odds are you’ve noticed that some of the best credit card deals are unfortunately off limit to you. Frankly, the best credit card offers are reserved for consumers with the best credit; if you have fair credit – meaning your credit score ranges anywhere from 620 to around 680 – you’re going to have settle for a slightly less lucrative offer.
So how “fair” are credit cards for fair credit, really?
Well, they’re actually excellent credit-building tools that – if used correctly – can improve your score consistently over time. They may carry higher ongoing interest rates, but consumers that pay off their bill in full each month will not only avoid these high APR’s – they’ll also improve their credit score by keeping their credit card balance low. Plus, some average credit credit cards include solid cash back opportunities and zero annual fees.
Taking all that into consideration, the answer is “Yes” – fair credit cards are actually quite fair and can lead to a better credit score and eventually a better credit card offer with responsible use over the course of a year or more.
Here’s how it’s done…
- Apply for a card
The myth that “no credit” amounts to “good credit” is just that: a myth. If you’ve never had a credit card, or you do have a card but almost never use it, odds are your score is fair-to-good but your credit history extremely limited. So how do you bump your score from average-to-excellent? Apply for a new card, use it, and pay it off in full each and every month.
- Make on-time payments each month to build your payment history
Once you’ve got that new credit card, the easiest way to build your score is to make on-time payments each month. The creators of the FICO score have said openly that over a third of your credit score is determined by your payment history. If you have a card but never use it, you’re doing little to improve your score.
Creditors like to see an active credit card user. So one of the easy tricks to building your score is to make small purchases and pay your bill on time every month (or even multiple times throughout the month) to increase your payment history.
- Always keep your balance low
Those same inventors of the FICO score have stated that the amount of credit debt you owe relative to the total available credit you have makes up another third of your score. This is called your credit-utilization ratio and keeping it low (under 10 percent) is imperative to building your average credit score.
- Give it 6 to 12 months
You know the saying that “Rome wasn’t built in a day”? Well, neither is your credit score. No matter what credit card you apply for, you’re not going to see a 50 point increase overnight. And that’s OK, since building your credit score literally takes a lifetime.
That said, taking action early to improve your fair credit is highly recommended if you want to start saving on interest rates while improving your approval rates on loans and credit card offers. Fair credit cards help you accomplish this, and they can even net you some cash rewards in the process.
So yes, fair credit credit cards are more than fair, and are as useful a credit-building tool you can hope for when prioritizing an improved