It may surprise you to learn that there are actually 30 different levels of credit score. Despite this fact, many people seeking the best credit score are often met with a confusing array of answers on Google. Unfortunately, much of the information available can be misleading and create more confusion than clarity. I'm Joe Mahlow, a financial literacy and credit repair specialist of more than 15 years, and I aim to offer straightforward advice on various topics, including credit scores. With my assistance, over 20,000 clients have successfully improved their credit scores and I hope to provide the same for you. So, without further ado, let's dive in.

Contents:

Different Types of Credit Scores: FICO vs Vantage

Understanding a Good Credit Score

Determining the Ideal Credit Score for Home Buying

Ideal Credit Score for Buying a Car

Tips for Improving Your Credit Score

Insights by Joe

Different Types of Credit Scores: FICO vs Vantage

Credit scores are a crucial part of our financial well-being. They provide lenders with an idea of how creditworthy we are as a borrower. There are two main credit scoring models to consider: the FICO model and the Vantage model. Both are essential to understand, as they differ in how they reach conclusions about your credit score.

FICO Credit Score

The FICO model is the most widely recognized and used credit scoring model. With eight different FICO models out there, you might get a different credit score depending on which model the lender using. This is primarily because each model has a different "weight," and certain factors hold more importance depending on the lender and the type of credit you are applying for. For example, if you apply for a mortgage, the lender will most likely pull your FICO 5 credit report, whereas for a credit card, they would probably pull your FICO 8 credit report. Therefore, it is essential to know what your various FICO scores are, which you can review on www.myfico.com, to ensure that your score is a true reflection of your creditworthiness when applying for different types of credit.

Vantage Credit Score

Vantage is a newer scoring model compared to FICO, which has been used since the seventies. Developed by Equifax, Experian, and TransUnion, the Vantage model aims to compete with the FICO model. While not as widely used as FICO in the lending sector, Vantage is becoming more commonplace in sectors such as personal loans and auto lending. Vantage is also frequently used to give people a free copy of their credit reports through various credit monitoring websites.

Is the Vantage Score Accurate?

The Vantage model provides a good "general idea" of your FICO score. However, it is not always accurate when it comes to your actual lending score, as FICO is the most widely recognized scoring model. Therefore, it can vary from your actual score if using Vantage to check your score. Nonetheless, Vantage is still a reliable scoring model to give you an idea of where your credit stands compared to others, especially if you cannot afford to pay for a FICO score. Lenders will most likely begin using the Vantage model more and more in the future, considering its ability to provide the best scoring data based on today's standards. Often, data collection agencies like the major credit bureaus are best equipped to provide the necessary data when improving credit scoring models.

Understanding a Good Credit Score

Credit scores are crucial when it comes to your financial health. Both the FICO and Vantage models have ranges from 350 to 850, with 350 being the lowest and 850 being the highest possible score. To maximize your score, it's essential to determine where you stand on the journey to building it up. Here are some score thresholds to consider:

620 or below:

This score range is considered bad credit. If you're in this group, you likely have a poor credit history, high-balance credit card accounts, or no credit cards at all. To improve your credit scores, make your payments on time, and open ten active revolving credit accounts - the Credit Builder Card or OpenSky Credit Card is an excellent place to start. Once you reach a 620 credit score, you will qualify for an FHA home mortgage.

640-680:

This score range is considered fair for good credit. If you fall into this category, it suggests that you have a credit history and some established credit, but you may also have derogatory marks, high balances on your credit cards, or newly opened accounts that temporarily lower your score. Don't worry; your scores will go back up.

740+:

Achieving this score range is considered "super-prime and puts you in the top 20% of the US population with the best interest rates for loans. If you have this score, congratulations! Keep up the excellent work by paying your accounts on time and maintaining a good balance on your revolving credit card accounts.

Determining the Ideal Credit Score for Home Buying

When it comes to purchasing a house, the appropriate credit score depends largely on the mortgage loan you are considering. The regulations and requirements for most mortgage loans remain similar but some do differ. Conventional loans, FHA loans, and VA loans, are the most popular types.

Conventional Loans

Conventional loans are a favorite among borrowers and a great cost-saving alternative to VA loans. To avoid private mortgage insurance (PMI) expenses, which increase downpayments or monthly payments, conventional loans do not require it. Lower downpayment requirements and better interest rates make them the most favorable loan in the market. The general credit score standard for conventional loans is 640, and a debt-to-debt ratio that is no higher than 43%.

FHA Loans

The credit score range for the FHA mortgage loan, which is usually 580-619, is relatively low. The loan program requirements vary, so seeking various lenders within range is vital. You will also need PMI for at least eleven years with this loan, so plan accordingly. Though it allows for a higher debt-to-income limit of 50%, it is only recommended for people with limited resources because of high interest rates and PMI. It requires as little as 3.5% of the purchase amount as a downpayment.

VA Loans

There isn't any regulatory credit score, but it's checkered for previous defaulted loans and the presence of past-due debts. To be eligible, you must have served in the US Military, the National Guard, or your spouse must have died in active duty. Among the loans listed, VA loans have the best and most attractive interest rates, with no downpayment required. It is an excellent reward to our honorable veterans.

Ideal Credit Score for Buying a Car

When purchasing a vehicle, your credit history is the most crucial factor in determining your eligibility rather than your credit score. Having a high credit score is important, but it plays a lesser role in the interest rate you qualify for. Lenders evaluate your past and current credit histories to determine the risk involved in extending credit. Therefore, having a history of late payments, repossessions, or current credit issues will make it more challenging to obtain a loan approval. However, bad credit or special finance lenders may qualify anyone for a car loan but will add specific criteria such as higher down payment and additional fees to the dealership. Dealerships also have to pay a processing fee to minimize their risk of extending credit and approving your loan application. Equally vital, equity or a reasonable down payment gives you the most leverage when financing the purchase of a vehicle.

Credit Score Range for Purchasing a New Vehicle

While there is no set credit score that determines loan approval, a credit score above 680 is ideal. A score below this range can increase your interest rates due to the perceived risk to the lender. The following example shows how a credit score can determine the interest rates and the amount of interest you will pay based on what category you fall into:

1. Someone with a credit score of 720 or higher will pay an average of $5,500 in interest on a loan.

2. Someone with a credit score of 680 or above will pay an average of $6,600 in interest on a loan.

3. Someone with a credit score of 650 or above will pay an average of $8,100 in interest on a loan.

4. Someone with a credit score of 615 or above will pay an average of $10,200 in interest on a loan.

5. Someone with a credit score of 580 or above will pay an average of $13,900 in interest on a loan.

6. Someone with a credit score of 580 or above will pay an average of $15,300 in interest on a loan.

As illustrated above, a higher credit score leads to paying less interest and affects your overall credit score.

Tips for Improving Your Credit Score

Improving your credit score is a process that takes time and effort, so having patience is essential. By following these tips, you can significantly increase your credit score:

1. Open 3-5 revolving credit accounts (credit cards)

Obtaining a large loan can be challenging, but revolving credit is an excellent option to help build your credit score. Start with a secured credit card that doesn't focus on your credit score but factors such as your ability to pay bills on time and your current income. Keep the balance low and use the card for small purchases only, such as gas and groceries. Revolving credit makes up 30-35% of your overall credit score and ensures a speedy improvement.

2. Raise your limits

You can request a credit limit increase for your credit cards, which will increase your overall credit limit and lower your credit utilization percentage. Contact your credit card company and request a "Credit Limit Increase." Ensure you have a history of excellent payment before they agree to it.

3. Pay down your balances

Keep your balance low and close to zero. If you have high balances, make a plan to pay a particular percentage of your paycheck each month to pay down the balance. Leave a $1-5 balance on your credit cards when paying bills each month. Avoid running up your balance again after paying it off. Your credit card spending plays a crucial role in your overall credit score, so avoid using your card unnecessarily and limit your credit card usage.

Remember that building a good credit score is an ongoing process that requires persistence and consistency to see results.

Insights by Joe

We have all gone through a phase when our credit is less than perfect. However, if you take your credit situation seriously and make an effort to improve your credit, you will soon see a significant turnaround in your credit score. Many people with bad credit tend to fall into the trap of believing that they will never have good credit again. Developing a great credit score requires hard work and discipline, and those who make their credit a priority and focus on their spending habits will succeed. Begin by creating a budget plan and working towards getting rid of any bad spending habits, as this will significantly reflect on your credit score. This article aims at helping you gain a better understanding of credit. If you are seeking guidance or help in repairing your credit, you can contact us at our office today via www.asapcreditrepairusa.com. Below are some of the key takeaways we would like you to remember:

Key Takeaways:

• Having less than perfect credit is common, and you can easily turn it around.
• You need to prioritize your credit by focusing on your spending habits.
• Creating a budget plan and working on your bad spending habits is a good place to start.
• This article aims to help you get a better hold of your credit.
• Reach out to us at www.asapcreditrepairusa.com if you need help repairing your credit.