It's important to note that there are a plethora of credit score levels available to you - 30 to be exact. It's not uncommon for people to search for "best credit score" and come across a range of conflicting information. Sometimes, such information can be misleading and cause more confusion than clarity. As someone who has been working in the financial literacy and credit repair industry for more than 15 years, my aim is to provide you with straightforward advice on credit scores. With over 20,000 clients who've been able to improve their credit score, I'm here to help you gain insights on credit scores too. Let's dive in!

Contents:

Exploring Credit Scores: FICO vs Vantage

Understanding Good Credit Scores

What Credit Score Is Needed to Buy a House?

Determining Your Credit Score for Car Loans

Tips to Increase Your Credit Score

Tips from Joe for Improving Your Credit Score

Exploring Credit Scores: FICO vs Vantage

Credit scores represent a critical factor in the lending world. Understanding the two different credit scoring models available - FICO and Vantage - is essential. Both models calculate credit scores differently, and their importance varies in different lending areas. This article breaks down the primary differences between FICO and Vantage, helping you make informed credit decisions.

FICO Credit Score

With its eight models, FICO dominates the lending sector. Each FICO model calculates your credit score differently, depending on the report it uses. For example, when applying for a mortgage, lenders will pull your FICO 5 credit report. On the other hand, credit card companies mainly use the FICO 8 report. The reason each report has varying scores is that each report will weigh certain factors more than others.

Vantage Credit Score

Vantage aims to compete with FICO as the newest credit scoring model. Developed by the three major credit reporting agencies, it is popular among credit-monitoring websites. It is mainly used for personal loans and auto lending and gives an idea of your FICO score. Consider the Vantage model as a general guideline for your credit score, although it will not provide an accurate lending score.

Accuracy of Vantage Score

Since Vantage is relatively new and not widely used for lending purposes, its accuracy varies. The FICO model remains dominant in the lending sector. Still, Vantage provides the best "general idea" of your credit scores, particularly for those not intending to apply for credit. As lenders may use Vantage scoring models more frequently in the future, it is worth keeping an eye on developments in this area.

Overall, credit scores significantly influence lending decisions, so it's critical to monitor them regularly. Sign up for an account with www.myfico.com to check multiple different credit scores. Remember, credit reporting agencies have a wealth of information, making them pivotal in providing the best credit scoring data.

Understanding Good Credit Scores

Both FICO and Vantage models score range from 350-850, with 350 being the lowest and 850 the highest credit score. In order to attain a high credit score, it's essential to grasp your position throughout the credit-building process. Below are vital score thresholds that can help you achieve your goals.

620 or below:

This score is considered bad credit. If you're in this range, you most likely have a history of negative credit, high-balance credit card accounts, or no credit card activity. The best way to improve your credit score is by making timely payments and opening at least ten revolving credit accounts. The Credit Builder Card or OpenSky Credit Card are recommended since they are secured credit cards that can help you build your credit. Once your credit score reaches 620, you can start qualifying for an FHA home mortgage.

640-680:

This range is considered fair for good credit. Scores in this range mean you've established credit, but there are still derogatory marks or accounts on your credit. You may also have high balances on your credit cards that you need to pay down. Furthermore, newly opened accounts can temporarily reduce your scores. If you recently opened a new account and find yourself in this range, be patient; it's a temporary dip, and your scores will recover.

740+:

Any credit score above 740 is considered "super-prime." This score range provides the best interest rates for most loans, placing you in a better financial position. Congratulations if you have over a 740 credit score because you're among only 20% of the US population with this score. Keep up the excellent work by paying your accounts on time and managing your revolving credit card accounts well. You will be in great financial shape!

What Credit Score Is Needed to Buy a House?

The credit score required to purchase a home depends on the type of mortgage loan you’re applying for. Different requirements and guidelines are put in place due to government backing and federal regulation. The three most well-known mortgage loan types include the FHA loan, VA loan, and conventional loan. Let’s review each one in further detail:

1. Conventional Loans

   Conventional loans are a favored loan type outside of VA loans, with the usual requirement of maintaining private mortgage insurance (PMI). This payment secures the lender’s loan in the event you default on payments. You can avoid PMI and enjoy lower down payments and interest rates. Credit score requirements are roughly 640 with the debt-to-debt ratio limited to 43%.

2. FHA loan

   FHA loans tend to be for those with lower credit ratings between 580 and 619, thus this loan is typically accompanied by a higher interest rate. Debt-to-income limits can be as high as 50%, but the PMI will be required for at least 11 years. The down payment requirement is low at 3.5%, however.

3. VA Loan

   While there is technically no required credit score for the VA loan, there are still requirements to qualify, including previous defaulted loans and government-owed past-due debts. The VA loan does not usually require a downpayment and generally has amazing interest rates. Qualification is contingent on you or your spouse’s military status.

Determining Your Credit Score for Car Loans

Credit history is the key factor in determining loan eligibility rather than credit score for car loans. While a high credit score carries its importance, it has less impact on the interest rate. When seeking a loan, the lender will evaluate your credit history, including prior loans, late payments, and repossessions, to determine the risk in extending credit. Special finance lenders with higher risks take care of almost anyone, and might require higher down payment and extra fees to secure loan approval. To get the most when buying credit, a deposit or equity in the vehicle would help.

Ideal Credit Score to Purchase a New Car

There is no set credit score that guarantees loan approval, but if your score is above 680, the interest rate reduction is excellent, and below it the interest will be higher due to risk. For someone with a score of 720 or higher paying on average $5,500 interest on a loan, while a score ranging from 680 to 719 pays about $6,600. A score of 580 and below pays, on average, $13,900 in interest on the loan. Therefore, the higher the credit score, the less the interest payment, improving your credit score.

Tips to Increase Your Credit Score

Improving your credit score is a time-consuming process that requires patience. It's important to keep in mind that building a good credit score won't happen overnight. Without patience, many people make bad decisions with their credit, compounding their problems. However, there are several things you can do right now to help improve your credit score:

1. Open up to five revolving credit accounts.

Revolving credit is an excellent option to maximize your credit score. Obtaining a large loan takes a lot of effort to build credit, but revolving credit gives you the best chance of approval. You might start with a secured credit card such as Open Sky or Credit Builder Card, which prioritize your ability to pay the bill on time rather than your credit score. Revolving credit makes up 30-35% of your overall credit score and is the best option to help build credit scores quickly. Remember to limit the use of the card to small purchases such as gas or groceries. It might take 2-4 months to show the increase in your credit scores.

2. Request a credit limit increase for your credit cards.

If you have active revolving credit card accounts, requesting a credit limit increase can help increase your overall credit limits and lower your credit utilization percentage. You can usually request a “Credit Limit Increase” online or by calling your credit card company. The process involves filling out some information, including your current income, which goes before their credit team who will decide whether they can be open to the request. Usually, a credit card company wants to see 7-15 months of excellent payment history on a credit card.

3. Keep your balance low and close to zero.

Although you're not obligated to use your credit cards each month, it's essential to keep your balance low to improve credit score. Try to use your credit card only for small purchases and leave a $1-5 balance on your credit cards. If you currently have high balances and do not have the financial wherewithal to pay your credit cards off, make a game plan to take a percentage of your paycheck each month to pay it down and eventually stop using them. Limit your credit card usage as much as possible since your credit card spending habits play a significant role in your overall credit score.

Tips from Joe for Improving Your Credit Score

It's not uncommon to have a less than ideal credit score, but it's important to take your credit situation seriously. By putting in time and effort to work on improving your credit, you can see significant changes in your credit score relatively quickly. Unfortunately, many individuals with bad credit fall into the trap of feeling like their situation is hopeless and that they'll never have good credit again. However, building a strong credit score requires prioritizing your credit and focusing on your spending habits. To get started, create a budget and identify and address any recurring bad spending habits. By doing so, you will see a positive impact on your credit score. For more information on credit repair or for guidance on improving your credit score, please visit www.asapcreditrepairusa.com.