It may surprise you to learn that there are actually 30 varying levels of credit scores. This fact is often overlooked by people conducting a search for the ideal credit score, which can lead to a plethora of conflicting and sometimes misleading information. As someone who has spent over 15 years in the realm of financial literacy and credit repair, my name is Joe Mahlow and it is my mission to provide practical insight into different topics, including credit scores. By sharing my knowledge and expertise, I have been able to successfully assist over 20,000 clients in elevating their credit standings, and I hope to similarly offer you valuable guidance. So, let's dive in!

Contents:

Exploring Different Credit Scoring Models

Understanding Your Credit Score

Qualifying Credit Score for Purchasing a Home

Determining What Credit Score is Ideal for Buying a Car

Ways to Improve Your Credit Score

Joe's Advice on Improving Your Credit Score

Exploring Different Credit Scoring Models

Credit scores are essential to your financial well-being, but do you know about the different scoring models? The two primary credit scoring models, the FICO and Vantage models, have their unique applications, and it's crucial to understand the differences in calculation methods.

FICO Credit Score

The FICO model is the most widely used credit scoring model, with eight different versions from FICO 2 to FICO 10. The variety of models accounts for the different factors that weigh more heavily in each credit report. For instance, a mortgage lender will likely pull your FICO 5 report, while credit card companies primarily use the FICO 8 report.

So why are there so many FICO scores, you ask? The answer is because each report has a different "weight" based on the essential factors for that particular lender. As a result, your credit score depends on the type of lending applied for, ranging from previous mortgage or credit card history to previous auto loans, among others.

Vantage Credit Score

Developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion), the Vantage scoring model competes with FICO. It is a relatively new scoring model in comparison and has become widely used on credit monitoring websites. While FICO remains the most recognized scoring model in the lending sector, Vantage is gaining popularity in personal loans and auto lending.

Is the Vantage Score accurate?

While the Vantage Score is accurate, its accuracy depends on the context. It may not be accurate when it comes to actual lending scores since FICO is the most recognized scoring model. However, it offers a good general idea of your credit score if you want to know where you stand. As credit reporting agencies dominate the data collection sector, the Vantage model is expected to gain wider acceptance for lending purposes in the next few years.

In conclusion, understanding the credit scoring models can help you make informed decisions to improve your scores and overall financial well-being. To get a better visual representation of your different FICO scores, you can sign up for an account on www.myfico.com.

Understanding Your Credit Score

Credit scores are essential indicators of your financial health and creditworthiness. FICO and Vantage models usually range from 350 to 850, with 850 being the proverbial gold standard. Your credit score determines whether you can qualify for credit, and at what interest rate. Let's take a closer look at the vital thresholds and factors that affect your credit score:

1. 620 or below:

Scores in this range are bad or poor, indicating a history of missed or late payments, high credit card balances, or no credit accounts. To improve your credit score, you need to make timely payments and maintain ten active revolving credit accounts. The Credit Builder Card or OpenSky Credit Card could help you build your credit history and qualify for an FHA home loan once you reach a score of 620.

2. 640-680:

Scores ranging from 640 to 680 are fair and indicate established credit, albeit with some derogatory marks or high balances on your credit cards. As a rule, opening a new account temporarily drops your score, but it will bounce back in no time. Pay down your balances, and be patient as you get back on track.

3. 740+:

Any credit score above 740 is considered "super-prime," and you are part of the top 20 percent of Americans in this category. Your superb score gives you access to low-interest rates on most loans, and congratulations on a job well done! Always pay your accounts on time, keep your balances low, and stay disciplined with your payments.

Qualifying Credit Score for Purchasing a Home

The required credit score for purchasing a home varies based on the type of mortgage loan you plan to take out. Different mortgage loans come with varying requirements and guidelines, with the three most common types being conventional loans, FHA loans, and VA loans. Let's take a closer look at each of these loan options.

Conventional Loans:

Conventional loans are hugely popular and are, along with the VA loan, often the most financially viable loan option. PMI is not usually required with a conventional loan which reduces the costs that may have otherwise increased your down payment or monthly payments, but low down payment options may be available. Conventional loans typically have lower down payment requirements and better interest rates than other mortgage loans, but you will need at least a credit score of 640 and a debt-to-income ratio that is not higher than 43%.

FHA Loans:

Qualifying for FHA Loans typically requires a credit score between 580 and 619. Remember that not all loan programs are identical, so it's worth looking around for different lenders with the best financial options. FHA loans generally require you to maintain PMI for at least 11 years, which can be an added cost to your mortgage. This loan option typically has a higher debt-to-income limit of up to 50%, which might work out better if you have a lower income. Additionally, the down payment requirements are typically lower on an FHA Loan with options as low as 3.5% of the purchase, although they tend to come with slightly higher interest rates.

VA Loans:

The VA Loan doesn't technically require a credit score, but before pre-qualifying you, they will want to know about any previous defaulted loans and any government-owed past-due debts. You must have served in the U.S. Military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or have a spouse who was in the military and lost their lives during active duty. VA loans usually have lower interest rates than other mortgage loans; they do not usually require a down payment, and are a fantastic way to give back to our country's vets.

Determining What Credit Score is Ideal for Buying a Car

When it comes to purchasing a car, a person's credit history is more important than their credit score. While a higher credit score still affects a loan's interest rate, creditors rely heavily on an applicant's credit history before granting them a loan. For instance, people with auto loan payments that are overdue or have had a previous repossession may face difficulty getting approved for a loan. Nevertheless, special finance lenders who specialize in approving applicants with terrible credit, even those with preceding repossessions, impose certain standards to qualify. Such standards include a higher down payment and additional dealership fees to reduce the risk of loan default and approve applicants. Moreover, having equity or a down payment gives one leverage and can improve the chances of getting approved for a loan.

Credit scores for Car Loans

Although lenders have different qualifications, a credit score higher than 680 is considered ideal. A credit score below this range can increase the interest rate charged on a loan due to the risk an applicant poses. The interest one pays on a loan significantly depends on their credit score; for instance, someone with a credit score above 720 pays an average interest of $5,500 on a loan while someone with a score of 580 pays about $15,300. Therefore, the higher the credit score, the less interest one pays, and this affects their overall credit score.

Ways to Improve Your Credit Score

Improving your credit score requires patience and effort. It is a gradual process and not something that can be achieved overnight. Impulsive decisions with regards to credit can lead to further problems instead of solutions. However, there are several actions that can boost your credit score with ease:

1. Open 3-5 revolving credit accounts:

Revolving credit is an excellent option for enhancing credit scores. Initiating a large loan for building credit is cumbersome, whereas obtaining a secured credit card is a better choice, especially for people with limited or poor credit. A secured credit card such as Open Sky or Credit Builder Card is a good starting point as it focuses on your capacity to pay the card on time without any previous bankruptcy history and income proof. Revolving credit amounts to 30-35% of the total credit score and proves to be the most effective way of raising credit score quickly. It may take 2-4 months to reflect this increase on credit scores, but timely payment of balance and keeping it low ($5-10) is vital. Limited usage of the card for essential items such as fuel or groceries is recommended.

2. Request a credit limit increase:

Requesting a credit limit increase for active revolving credit accounts can increase overall credit limits and decrease credit utilization percentage, leading to higher credit scores. People usually surpass their credit card limits, which can negatively impact credit scores. Credit card companies may have different procedures for increasing credit limits, such as through online portals or calls. It is best to request a credit limit increase after maintaining an excellent payment history for 7-15 months.

3. Reduce balances:

Maintaining balances close to zero is crucial for enhancing credit scores. Monthly credit card usage is not mandatory, so it is recommended to use them for smaller purchases. Leaving a balance of $1-5 on credit cards is preferable while clearing monthly bills. Creating a plan to pay off credit card debt is necessary if the current balance is significant. It is unwise to repeatedly pay it off and then accumulate debt again. Keeping credit card usage to a minimum and only for essential purchases is crucial. High-interest rates on credit cards imply that most payments go towards interest, and credit score may deteriorate with such practices.

Joe's Advice on Improving Your Credit Score

It's common to have less than perfect credit, but it's not a hopeless situation. If you want to improve your credit score, it's important to take your current credit situation seriously and work on improving it. Many individuals with bad credit feel stuck in a cycle of poor credit and assume they'll never have good credit again. However, it takes effort and dedication to develop a good credit score. By prioritizing your credit and evaluating your spending habits, you can see significant changes in your credit score in a short time period. Start by developing a budget and identifying areas where you need to improve your spending. If you need additional help or guidance, reach out to our office at www.asapcreditrepairusa.com. Here are some tips for understanding and improving your credit score: