The average FICO score in the United States in April 2021 is 716, which is in the good credit score range. A FICO score of 600 is below average and falls within the fair credit score range.
Although there are credit cards that target fair credit, interest rates will be high. You may even have trouble getting approved for a mortgage, as 600 would be considered a subprime credit score by many lenders.
But you don’t have to stay within the fair credit range. There is no reason why your score of 600 should not be high in the good credit score range.
All you need is a better understanding of how scores work and the right strategies to improve your score.
What are the FICO score ranges?
FICO scores range from 300 to 850, with 850 being a perfect credit score.
Here are the FICO score ranges:
- Exceptional: 800-850.
- Very good: 740-799.
- Good: 670-739.
- Fair: 580-669.
- Poor: 300-579.
As you can see, good credit starts at 670, so a score of 600 isn’t that far off. Your FICO score is made up of five factors. Once you understand each of them, you’ll have a better idea of how to improve your score.
How your FICO score is calculated
Your lender may ask for a VantageScore, but since 90% of lenders use some version of the FICO score, I’ll focus on FICO.
There are five factors that make up your FICO score. Here is each factor and the weight given to it by the FICO algorithm:
- Payment history: 35%.
- Amounts due: 30%.
- Length of credit history: 15%.
- New credit: 10%.
- Loan composition: 10%.
Payment history: 35%
Your payment history is the most influential factor in your score. As long as you pay all your bills on time, you will be in good shape. Lenders want to see that you’ve paid as agreed, which tells them you’re creditworthy. Once you miss a payment, it can really drop your score.
Amounts due: 30%
You have a credit utilization ratio, which is the amount of credit you have used compared to the amount you have.
Here’s an example: Let’s say you have a credit card with a credit limit of $1,000 and you have a balance of $700. This means that you have a credit utilization rate of 70% (700/1000 = 70%). This ratio is considered unacceptable. You need a ratio below 30% to avoid a drop in your score.
But here’s an insider tip: to really maximize this part of the score, keep your utilization rate below 10%. Using the details from our example, this means that your balance should not exceed $100 (100/1000 = 10%).
And before you think that you can increase the balance of one card while keeping the others low, you should know that the algorithm looks at your usage ratio on all your cards and the ratios on each credit card.
Length of credit history: 15%
The better your credit history, the better. That’s not to say you can’t have a great score when you’ve only been using credit for a few years. But having decades of stellar credit certainly helps you maintain a really good or even a great FICO score.
New credit: 10%
Each time you apply for a credit card, your credit score may drop by about two to five points. The amount – if any – of the decrease depends on other factors in your credit file.
As you try to improve your score, limit requests for new credit. Space them about six months apart. There is also a psychological reason for avoiding a lot of credit activity. Your credit card issuer reviews your credit report every month or so. This is a soft request, so it doesn’t lower your score.
But if the issuer sees that you are asking for a lot of credit, it looks like you are in a financial crisis. This could result in a decrease in your current credit limit, which lowers issuer risk.
Remember the credit utilization rate we talked about earlier? If your credit limit is reduced, you lose some of your available credit. This increases your ratio and lowers your score.
Credit mix: 10%
To earn high marks for this part of the FICO score, you need to show that you can handle different types of credit. For example, your credit report may show that you have a student loan, mortgage, or car loan, which are installment loans.
Revolving credit is another type of credit. With this type of loan, you have a limit or line of credit, and you have the flexibility to use as much or as little as you need. Credit cards, home equity lines of credit and personal lines of credit are examples of revolving credit.
The longer you have credit, the more likely you are to have a good mix. So don’t go buy a car to get an installment loan on your credit report. Life has a way of ensuring that we end up with a variety of credit-related accounts.
How to improve your credit score 600
There’s no magic formula to boosting your score to 670, but if you follow these steps, you’re on the right track:
- Create a budget and track expenses. There are plenty of free apps and websites to help you automate this. If you prefer to create your own spreadsheets, that’s fine too. Just make sure you have a process in place.
- Pay your bills on time. I mentioned before that payment history makes up 35% of your FICO score. If you pay all your bills on time, you’ll be fine. Do whatever it takes to make that happen, like setting up email or text reminders.
- Keep balances low. If you keep your credit card balances below 10% of your credit limit, you will see a positive impact on your score. This assumes, however, that you also pay your bills on time.
- Limit new credit applications. Each time you apply for a credit card, your credit score may drop a few points. You are in a score building phase right now. So, for now, avoid actions that could negatively impact your score.