Have you checked your credit score recently? In Canada, your credit score is a number between 300 and 900 that indicates your risk-level as a borrower. Fair credit scores fall between 660 and 712. If you have a fair credit score, you are an average-risk borrower.
Your credit score can fall into one of five categories:
Excellent: 741-900
Good: 713-740
Fair: 660-712
Below Average: 575-659
Poor: 300-574
As you can see, fair credit scores fall in the middle of the pack. If your credit score is fair, it’s certainly not bad. But improving your credit score can help you improve your overall financial health! That’s because having a good credit score can help you qualify for lower interest rates and better financial products.
Keep reading to learn more about how a fair credit score impacts your finances, along with how you can improve your credit score.
What does a Fair Credit Score Mean for My Finances?
When you apply for financial products, like mortgages, credit cards, and loans, lenders review your credit score to determine your risk level before approving your application. Having a fair credit score means that you’re an average-risk borrower. You’re not a high-risk borrower, but you’re not the most attractive applicant. Lenders aren’t falling over themselves to lend you their best products.
With a fair credit score, you’ll have good chances getting approved for many products, but you might not qualify for top-tier financial products. Premium credit cards, such as travel rewards and cashback cards, may be out of your reach. In addition, the loans and mortgages you qualify for may not have the lowest interest rates or most favourable terms.
Here’s how a fair credit score impacts your ability to qualify for mortgages, credit cards, and loans.
Can I Get a Mortgage with Fair Credit?
Your credit score impacts your ability to qualify for mortgages. It also impacts which mortgage rates and payment terms you’ll be offered. You can get a mortgage with fair credit, but depending on your credit score, you might not be offered the best rates and terms. To qualify for the best mortgage rates in Canada, you need a credit score of 680 or above.
If your credit score is hovering around 660, mortgage providers may be hesitant to work with you. You may want to improve your credit score before starting your house-hunting adventure. If your credit score is above 680, you’ll have higher chances of qualifying for lower rates and flexible payment terms from major lenders. A good credit score can help you minimize your monthly mortgage payments.
Some mortgage providers work with individuals with fair credit scores and below, but these providers may charge higher interest rates. You can use Borrowell to find out what mortgages and interest rates you qualify for with your credit score.
Can I Get a Credit Card with Fair Credit?
Your credit score affects what kinds of credit cards you’ll qualify for. It also impacts how much your credit limit will be, along with any rewards and perks you may receive. You can get most standard credit cards in Canada with fair credit, but you might not qualify for top-tier cards with high credit limits and exclusive rewards. A credit score of 660 or above is required to qualify with most credit card providers.
Premium credit cards with exclusive perks often require good to excellent credit scores. Individuals with higher credit scores have a larger selection of credit card lenders to choose from, along with more perks and higher credit limits. Individuals with fair credit scores have more limited credit card options.
If you have a fair credit score, you might not get approved for the most compelling premium cards available. Some travel cards, rewards cards, and cashback cards may be just out of your reach for the time being. If you’re not sure whether you qualify for premium cards, you can use Borrowell to see which cards are available to you based on your credit score. You can see your chances of approval and find ways to improve your credit score.
Can I get a Personal Loan with Fair Credit?
Your credit score will determine which personal loans you qualify for. It will also impact how much money you’ll receive and how low your interest rate will be. You can get a personal loan with fair credit, but you might not qualify for the lowest interest rates available from Canada’s major lenders.
Individuals with higher credit scores are more likely to qualify for larger amounts of money and lower rates on personal loans. Individuals with fair credit scores will have more limited loan options with more rigid interest rates and terms. If you have a fair credit score, you might qualify for offers from major banks and lenders, but alternative or online lenders may have more competitive offers available to you. If you have a bad credit score below 660, you can still find a personal loan, but you likely won’t qualify for offers from major banks and lenders.
If you have a fair credit score, taking out a loan can actually help you improve your credit score. Making on-time payments towards a loan builds up your payment history, which is the largest factor that impacts your credit score. So if you have a fair credit score and find a loan that works for you, it may be worth taking out that loan to improve your credit score and qualify for even better financial products in the future.
How Can I Improve a Fair Credit Score?
If you have a fair credit score, there are tangible steps you can take to improve your credit score. Taking these steps can help you qualify for more competitive products and rates in the future.
Pay Your Bills on Time
Your payment history makes up 35% of your credit score and is the largest factor that impacts your credit score. Paying your bills on-time is the most straightforward way to improve your credit score.
If you have a fair credit score, making consistent payments towards your credit cards, loans, utilities and other bills can help you increase your credit score over time. On the other hand, late payments can cause your credit score to drop.
Avoid missing your bills by tracking your bills and automating your monthly payments. Set up auto-pay with your credit card or an automatic transfer to and from your chequing account.
Keep Your Credit Utilization Ratio in Check
Your credit utilization ratio is how much credit you have used up compared to the total amount of credit available to you. For example, if you have a credit card balance of $500 and your credit limit is $1000, your credit utilization ratio would be 50%.
Your credit utilization ratio makes up 30% of your credit score, so it’s another large factor that impacts your credit health. The golden rule is that you should keep your credit utilization ratio under 30%. If you have a fair credit score, you should look at your credit accounts and see how you can reduce some of your expenses. Reducing the number of purchases you make with credit can help you keep your credit utilization ratio in check.
Improve Your Credit Mix
Your credit mix is all the different types of credit accounts that you have open. This can include your mortgage, along with any credit cards and loans you’ve taken out. Your credit mix makes up 10% of your overall credit score, so it’s not the largest factor that impacts your credit score.
That said, variety is the spice of life, and having a variety of credit accounts in your name can help you improve your credit score over time. A diverse credit mix also demonstrates to lenders that you can successfully manage different types of financial products under your belt. Lenders may be more willing to work with you as a result.
Keep Your Credit Accounts Open
Your credit accounts age like fine wine. The longer they’ve been open for, the more beneficial they can be for your credit score. Your credit history makes up 15% of your credit score. It factors in the age of your oldest credit account and the average age of all of your credit accounts.
Building your credit history will help you improve your credit score over time. A long and established credit history also shows lenders that you are a reliable and responsible borrower.
Why Is it Important To Improve Your Credit from Fair to Good?
Improving your credit score from fair to good can help you qualify for the best financial products, interest rates, and terms available in Canada. A good credit score can help you increase your approval chances for top-tier products. You can qualify for lower interest rates on loans and mortgages, and you’ll have more credit card options than before.
If you have a fair credit score, you’re an average-risk borrower who has pretty good chances of being approved for many financial products. That said, a fair credit score could prevent you from qualifying for premium rewards credit cards or low-interest personal loans. In some instances, a fair credit could even prevent you from getting an affordable mortgage to buy your dream home. Improving your credit score is in your best interest, as a good or excellent credit score can help you more easily achieve your financial goals.
Evan is the Content Marketing Manager at Borrowell. Evan is passionate about personal finance, and his articles on financial trends have been featured in publications including the Financial Post and BNN Bloomberg. In his spare time, he enjoys playing and listening to music.