30 different levels of credit scores exist! It's common for people to turn to Google when searching for the best credit score, but the plethora of information can often lead to confusion and misleading advice. I'm Joe Mahlow, a financial literacy and credit repair expert with over fifteen years of experience. Through my expertise, I aim to provide you with authentic advice on various topics related to credit, like this one. I take pride in helping over twenty thousand clients increase their credit scores, and I hope to do the same for you by providing you with the necessary information. So, let's delve into it.

Contents:

Different Types of Credit Scores: FICO and Vantage

Understanding What Constitutes a Good Credit Score

What Credit Score is Needed to Qualify for a Mortgage?

Ideal Credit Score Range for Car Buying

Tips for Improving Your Credit Score

Joe's Perspective on Credit Improvement

Different Types of Credit Scores: FICO and Vantage

Credit scores are essential for obtaining loans and credit cards, and they come in different types. The two most common scoring models are the FICO model and the Vantage model. It's important to understand both models and the differences in how they calculate your credit score.

1. FICO Credit Score

The FICO credit scoring model is the most popular and widely used among lenders. It consists of eight different models, ranging from FICO 2 to FICO 10. Each model produces different credit scores based on your credit report. This is because lenders pull different FICO reports depending on the type of credit you're applying for. For example, a mortgage lender will most likely pull your FICO 5 credit report, while a credit card company will pull your FICO 8 credit report.

So why are there so many FICO scores? The scores are weighted differently based on the critical factors for each lender. For instance, previous mortgage history has a significant impact on a FICO 5 score, while credit card history affects a FICO 8 score more. Auto lenders typically pull FICO-2 reports, and previous auto history heavily influences the score.

2. Vantage Credit Score

The Vantage Score is a newer scoring model developed by the three major credit reporting agencies, Equifax, Experian, and TransUnion, to compete with FICO. While not as widely used as FICO, Vantage is gaining popularity in some sectors, such as personal loans and auto lending. Credit monitoring sites often use Vantage to provide free credit reports.

Is the Vantage Score accurate? It depends on the context. While it's accurate as a general idea of your credit score, it may not be accurate for lending purposes since lenders predominantly use FICO. Nonetheless, Vantage can provide you with an estimate of where your overall scores are.

The FICO scoring model may be outdated, and Vantage may eventually become the norm with its ability to provide the best scoring models based on today's standards. As credit reporting agencies possess vast amounts of data, they're well-positioned to provide the best scoring data possible. If you want a better understanding of your different FICO scores, visit www.myfico.com and sign up for an account.

Understanding What Constitutes a Good Credit Score

Both the FICO and Vantage scoring models range from 350 to 850, with 850 being the best score and 350 being the worst. It is essential to understand where you stand on your journey to building credit, so let's examine some critical score benchmarks.

1. Scores of 620 or Below

• If you are below 620, it's considered bad credit, and you most likely have adverse credit history, high-balance credit card accounts, or no credit cards at all.
• To improve your credit score, you should have ten active revolving credit accounts and make timely payments.
• Secured credit cards such as Credit Builder Card or OpenSky Credit Card are recommended to start building your credit.
• Once you reach this score, you can qualify for an FHA home mortgage.

2. Scores of 640-680

• If you're in this range, it's considered fair for good credit, indicating that you've established credit.
• However, you may have some derogatory marks or accounts on your credit, high balances on your credit cards, or newly opened accounts, leading to a temporary drop in your scores.
• You can get your scores back by paying down high balances and waiting for newly opened accounts to age.

3. Scores of 740+

• Any credit score over 740 is considered "super-prime," and it gives you access to the best interest rates for most loans.
• A credit score of over 740 puts you in the top 20% of the US population.
• Consistent on-time payments and keeping your revolving credit card accounts paid will help maintain an excellent credit score.

What Credit Score is Needed to Qualify for a Mortgage?

The criteria for qualifying for a mortgage loan rely on the type of loan you choose. In the United States, most mortgage loans have comparable requirements and procedures due to federal regulations and government backing. There are three primary loan options: conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular type of loan and are typically the best bet for savings outside of the VA loan. With conventional loans, you are not required to maintain private mortgage insurance (PMI), which can increase your down payment or monthly payment. PMI safeguards the lender in the event you default on your loan. Conventional loans usually have lower down payment requirements and better interest rates than other mortgage loans. The conventional mortgage loan credit score prerequisite is typically 640, with a debt-to-income ratio no higher than 43%.

FHA Loan

An FHA mortgage loan is for individuals with lower credit scores, typically between 580 and 619. It is important to remember that since all loan programs have different requirements, if you fall within the credit score limits, shop around for several lenders to determine the best financial option for you. FHA loans necessitate keeping PMI for at least 11 years, which can be an extra expense to your mortgage and a point to consider, particularly if you're operating on a budget. This type of loan typically has a higher debt-to-income limit, which can enable you to purchase more homes than with a conventional loan, particularly if you have a lower income. Lastly, the FHA loan demands a down payment of only 3.5% of the purchase price, which means you can get into a mortgage with less cash out of pocket than a conventional loan, but you'll usually have a higher interest rate.

VA Loan

There isn't technically a credit score requirement for the VA loan. However, when pre-qualifying you, they examine whether you have defaulted on any previous loans or owe the government past-due debts. To qualify for a VA loan, you must have served in the United States Military for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or had your spouse pass away during active duty. The VA loan commonly has the most reasonable interest rates, and they frequently do not require a down payment. The VA loan is perfect for veterans since it gives back to them.

Ideal Credit Score Range for Car Buying

While looking to purchase a car, your credit score plays a crucial role in determining what you are eligible for, but your credit history carries more weight than the score itself. A higher credit score is important, but its impact on the interest rate is limited. Rather, the lenders scrutinize your past and current credit histories for assessing your creditworthiness. For instance, those who have been late on a previous or ongoing auto loan or had a repossession, getting approval for a loan is a challenge compared to those who have a spotless credit history. Nevertheless, even the worst credit lenders will qualify anyone for a car loan, albeit with specific criteria, such as a higher down payment and extra fees paid by the dealership to minimize the risk of default on the loan. A credit score of over 680 is favourable, but anything below this mark can increase the interest rate and the risk for the lender.

Besides credit score, other factors influence the interest rate that you will pay, as demonstrated in the following example:

Credit Score Factors

1. Credit score of 720 and above:

   Pay $5,500 in interest on average.

2. Credit score of 680 and above:

   Pay $6,600 in interest on average.

3. Credit score of 650 and above:

   Pay $8,100 in interest on average.

4. Credit score of 615 and above:

   Pay $10,200 in interest on average.

5. Credit score of 580 and above:

   Pay $13,900 in interest on average.

6. Credit score below 580:

   Pay $15,300 in interest on average.

This data indicates that those with higher credit scores pay less interest, which in turn improves their credit scores. Lastly, when purchasing a vehicle on credit, having equity or a down-payment gives you more leverage.

Tips for Improving Your Credit Score

Building a good credit score takes time, but there are steps you can take right now to improve it. These include:

1. Opening 3-5 revolving credit accounts.

Revolving credit makes up 30-35% of your credit score, so opening a secured credit card like Open Sky or Credit Builder Card can help you build credit quickly. Be sure to use the card for small purchases and pay it off in full and on time each month.

2. Raising your limits.

Requesting a credit limit increase can help lower your credit utilization percentage, which is a key factor in your credit score. Contact your credit card company and ask for a credit limit increase.

3. Paying down your balances.

To keep your credit card usage in check, use them for small purchases only, and always leave a balance of $1-5 each month. If you have high balances, make a plan to pay them down each month and limit your credit card usage.

Remember that patience is key when building your credit score. By taking these steps and making wise financial decisions, you can improve your credit score over time.

Joe's Perspective on Credit Improvement

It's not uncommon to have a less than desirable credit score. However, taking your current situation seriously and dedicating time and effort to improving your credit can result in significant changes to your score in a relatively short amount of time. Many people with poor credit get caught in an endless cycle of credit issues and believe that restoring their credit is impossible. But, establishing a strong credit score is achievable, and those who prioritize their credit and spending habits are more likely to succeed. The starting point is to create a budget and work on addressing bad spending habits, as this will directly impact your credit score. If you need guidance on credit repair, don't hesitate to contact my office today at www.asapcreditrepairusa.com. Here are some key takeaways to remember: