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Credit scores can be a confusing topic for many people. Did you know that there are actually 30 different levels of credit scores? It's understandable that you may be looking for the best credit score, but searching for information online can bring up a lot of conflicting answers. Unfortunately, there's a lot of misleading information out there that could lead you down the wrong path. That's where I come in. My name is Joe Mahlow and I'm a financial literacy and credit repair expert with over fifteen years of experience. My goal is to provide you with honest advice on different financial topics, including credit scores. Through my work, I have successfully helped over twenty thousand clients improve their credit scores. Now, I'm here to share some tips with you so that you can do the same! Let's dive in.

Contents:

Different Credit Scoring Models Explained

Understanding Your Credit Score

Credit Score Requirements for Mortgage Loans

Determining the Credit Score Range for Car Buyers

Tips on Increasing Your Credit Score

Joe's Advice: Improving Your Credit Score

Different Credit Scoring Models Explained

Credit scores are essential in determining your creditworthiness and are calculated using different models. The two most widely used credit scoring models are FICO and Vantage. Both models are crucial and have different elements that need to be understood to calculate your credit score accurately.

FICO Credit Score

FICO is the most recognized credit scoring model, with eight variants ranging from FICO 2 to FICO 10. Each variant might yield a different credit score, depending on the credit report. Credit companies, based on their preference, use different FICO reports. For instance, if you are applying for a mortgage, the lender will most likely pull your FICO 5 credit report, whereas your FICO 8 credit report will be pulled if you apply for a credit card. Each FICO score's weight varies to reflect the critical factors needed in a particular lending scenario. For example, previous mortgage history has a more significant impact on FICO 5 score than any other history type.

Vantage Credit Score

The Vantage score is a relatively new scoring model compared to FICO. It was developed by three credit reporting agencies, Equifax, Experian, and TransUnion as a competitor to FICO. The Vantage score model is frequently used by credit monitoring sites to provide free credit reports. Although currently not as recognized as FICO, it is gaining popularity in sectors such as personal loans and auto lending.

Accuracy of the Vantage Score

Vantage score is relatively accurate; however, it is less widely used in lending than FICO. Therefore, it may not provide an accurate prediction of your lending score. However, the Vantage score can give you a general idea of your credit score without paying for it or having a lender pull your credit report. Ultimately, the Vantage scoring model is expected to become more widespread as technologies evolve, making it one of the most widely used scoring models nationwide.

In conclusion, credit score reporting agencies are crucial in determining your creditworthiness and providing the best credit scoring data. Thus, it is essential to understand the different credit scoring models to provide the best scores based on current standards. Use the information above to gain a better understanding of credit scores.

Understanding Your Credit Score

Your credit score is an essential aspect of your financial life, used by lenders to determine your creditworthiness. Credit scores range from 350 to 850 for both FICO and Vantage models. A score of 350 is the worst possible credit score, while 850 is the best. As you strive for the highest possible score, understanding where you stand on the journey to building your credit is vital. To help you set your goals and assess your progress, I have included some important score thresholds below.

1. 620 or Below:

A score of 620 or below is considered bad credit and indicates adverse credit history, high-balance credit card accounts, or a lack of credit cards in general. To improve your credit score, you'll need to make timely payments and have ten active revolving credit accounts. You can consider using secured credit cards such as the Credit Builder Card or OpenSky Credit Card to build your credit. Once you reach the 620 credit score range, you can qualify for an FHA home mortgage.

2. 640-680:

A score within this range is considered fair for good credit. You may have established credit, but you might have some derogatory marks or accounts on your credit report. You might also have high balances on your credit cards that need to be paid down. Another reason for any score drop could be newly opened accounts. If this is the case, do not panic, as your scores will recover soon.

3. 740+:

Any credit score over 740 is considered "super-prime" and will get you the best interest rates for most loans. If your credit score is over 740, congratulations, because only 20% of the US population has a score this high. To maintain your high credit score, always pay your accounts on time and keep your revolving credit card accounts paid.

Credit Score Requirements for Mortgage Loans

The credit score needed to buy a house largely depends on the type of mortgage loan you want to apply for. Federal regulations and government backing ensure that the majority of mortgage loans have similar, if not different, requirements and guidelines. The most common mortgage loan types include conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans are the most popular loans and often offer the best "savings" option apart from the VA loan. They do not require private mortgage insurance (PMI), which can increase your down payment or monthly payment and serve as an added cost. Conventional loans have lower down payment requirements and better interest rates than other mortgage loans. Typically, you need a credit score of 640 and a debt-to-income ratio no higher than 43%.

2. FHA Loan

The FHA mortgage loan is designed for lower credit scores, usually between 580 and 619. Keep in mind that different lenders offer various financial options within the credit score limits. FHA loans require PMI for at least 11 years, which can be a cost to your mortgage and should be considered if you're on a budget. FHA loans usually have a higher debt-to-income limit of up to 50%, allowing you to buy more homes if you have a lower income. The down payment requirements on an FHA loan are as low as 3.5%, so you could get into a mortgage with less money out of pocket but typically with a higher interest rate.

3. VA Loan

Although there is no precise credit score requirement for the VA loan, they check your past defaulted loans and any government-owed past-due debts when pre-qualifying you. You may qualify for the VA loan if you served in the military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or your spouse died during active duty. The VA loan typically offers the lowest interest rates and usually does not require a down payment, making it an ideal option for veterans.

Determining the Credit Score Range for Car Buyers

The credit history is a primary concern rather than the credit score itself when buying a car. Even though a good credit score is important, it impacts the interest rate less, and lenders review the credit history while considering to extend the credit. Previous and current credit histories are the basis to determine credit risk when applying for a car loan. Car buyers with negative credit history like late payment or repossession will find it more challenging to get loan approval. In these situations, special finance lenders can qualify almost everyone for a car loan, but they impose additional criteria such as higher down payment and fees to reduce risk. A credit score above 680 is ideal for car financing as it positively impacts the interest rate. However, any score below 680 increases the interest rate, increasing the risk for lenders, posing a challenge for approval. Regardless, a higher credit score will lead to a smaller interest rate. Below is a table indicating the correlation between the credit score and interest rates:

1. With a 720 credit score and above, you will pay an average interest of $5,500 on a loan.

2. With a 680 credit score and above, you will pay an average interest of $6,600 on a loan.

3. With a 650 credit score and above, you will pay an average interest of $8,100 on a loan.

4. With a 615 credit score and above, you will pay an average interest of $10,200 on a loan.

5. With a 580 credit score and above, you will pay an average interest of $13,900 on a loan.

6. Finally, with a credit score of 580 and above, you will pay an average interest of $15,300 on a loan.

As the data suggests, the credit history and score of car buyers either enable or hinder loan approval, requiring buyers to have enough equity or down payment, and emphasizing the importance of maintaining good credit history.

Tips on Increasing Your Credit Score

Improving your credit score takes time, and it requires patience and sensible financial decisions. A few steps you can take right now that may help you increase your credit score are:

1. Open 3-5 Revolving Credit accounts (Credit Cards)

Revolving credit is an excellent option for those with limited or damaged credit. It increases your chances of getting credit approval. A secured credit card that doesn't rely heavily on your credit score, such as Open Sky or Credit Builder Card, would be a good starting option. This type of credit makes up 30-35% of your overall score, and it may show improvements in your credit score within 2-4 months if you make payments on time and keep your balance at $5-10.

2. Raise Your Limits!

Requesting a credit limit increase is an easy and quick way to lower your credit utilization percentage and improve your overall credit limits. Different credit card companies have a different process of requesting a credit limit increase. You can do this online through your portal or by calling the company. They will ask you to fill out your income and payment history. Credit card companies usually require 7-15 months of excellent payment history before increasing your credit limit.

3. Pay Down Your Balances!

Keeping your balance low and close to zero is crucial for increasing your credit score. If you have high balances and are unable to pay them off, you need to come up with a repayment plan. You should also avoid using credit cards to make unnecessary purchases. Limiting credit card usage will play a significant role in your overall credit score.

Joe's Advice: Improving Your Credit Score

We've all experienced having bad credit, but it's best to take the situation seriously and make a conscious effort to work on yourself and your credit. Doing so can quickly lead to significant improvements in your credit score. Many people with poor credit feel like they're stuck in a never-ending cycle, but it's essential to understand that building good credit takes time and effort. Those who prioritize their credit and spending habits will ultimately succeed. Start by creating a budget and addressing any harmful spending habits, which can impact your credit score. If you're looking for more information on credit and need assistance with credit repair, reach out to my office today at www.asapcreditrepairusa.com.

Bullet Points:

• Taking your credit situation seriously is the first step towards improving your score.
• Developing good credit requires time and effort, but it is possible.
• Prioritizing your credit and spending habits will lead to success.
• Create a budget and work on any harmful spending habits to boost your score.
• Contact Joe's office at www.asapcreditrepairusa.com for help with credit repair.