It might surprise you to learn that there are actually 30 distinct levels of credit scores. Despite this, many people who try to research the best credit score are met with inconsistent and even contradictory advice. You could easily get lost in a labyrinth of misinformation and speculation. My name is Emily, and over the course of 15 years in financial literacy and credit repair, I have gained a great deal of expertise. My aim is to provide you with clear and actionable insights on all sorts of topics, including credit scores. In my time working with more than 20,000 clients, I have helped to dramatically transform their credit scores. With the right knowledge, I believe anyone can do the same. So, let's dive in!

Contents:

Different Types of Credit Scores You Should Know About

Understanding What Constitutes a Good Credit Score

Determining the Ideal Credit Score for Home Buying

Determining the credit score you need to buy a car

Assistance with Boosting Your Credit Score

Tips from Joe on Improving Your Credit Score

Different Types of Credit Scores You Should Know About

To comprehend how credit scores work and how to enhance them, it is essential to know about the two most well-known models of credit scoring, the FICO model and the Vantage model. Both models have a crucial role in identifying the differences in calculating your credit score.

FICO Credit Score

FICO credit scoring model is the widely used and popular model. The model has 8 different models, starting from FICO 2 to FICO 10. Depending on your credit report, you will receive different credit scores, which can be confusing. Each FICO model has a particular "weight" for credit factors, which affect the score for each report. When you apply for credit, the lending company will pull a different FICO report based on the type of lender. For example, if you apply for a home loan, you will most likely have a FICO 5 score report. Conversely, if you apply for a credit card, your FICO 8 score report will be pulled.

Why So Many FICO Scores?

Each credit report's critical lending factors have different weights, affecting the credit score calculated by the FICO score. For example, the FICO 5 mortgage report's critical factor is mortgage history, while credit card history weighs the most in the FICO 8 report. Different lending sectors use different reports. Auto lenders, for example, use FICO 2 reports.

Vantage Credit Score

The Vantage score is a competition developed by three significant credit reporting agencies to compete with the dominant FICO score. Although FICO score is used more frequently in lending sectors, the Vantage score can provide a "general idea" of your FICO score. Vantage is used primarily in personal loans and auto lending sectors.

The Accuracy of Vantage Score

While the Vantage score is accurate, especially for general ideas, it is not widely used in lending, so it may be less accurate than FICO scores with respect to lending scores. However, Vantage's use is on the rise, and it could become widely used in the next decade with its scoring models to offer the best representation for credit scores based on today's standards.

Understanding What Constitutes a Good Credit Score

Credit scores for both FICO and Vantage models range from 350 to 850, with 350 being the lowest and 850 being the highest score you can have. To achieve your goals of attaining the highest possible scores, it is crucial to understand where you stand during the credit-building journey. Here are some essential score thresholds to help you along the way:

620 or lower

• This score is considered bad credit, indicating negative credit history, high-balance credit card accounts, or no credit cards at all. To improve credit scores, it is necessary to make timely repayments and have ten active revolving credit accounts. Secured credit cards like Credit Builder Card or OpenSky Credit Card could help build credit. At 620, you can know you qualify for an FHA home mortgage.

640-680

• Scores in this range are considered fair for good credit. It typically means that you have established credit, but derogatory remarks or accounts may be on your credit report, and you may have high balances on credit cards to pay down. Recently opened accounts may impact scores only temporarily.

740+

• Any score above 740 is considered "super-prime," which will earn the best interest rates for the majority of loans. If you have a score above 740, congratulations, you are part of the 20% of the US population having this score. Maintaining timely payments and keeping revolving credit cards paid is a testament to your hard work and will put you in excellent shape.

Determining the Ideal Credit Score for Home Buying

The answer to the vital question of what credit score you need to buy a house varies with the type of mortgage loan you're after. The standards and criteria for qualification are generally similar or different based on the federal regulations and government backing for most home loans. There are three common mortgage loan types: conventional, FHA, and VA loans.

Conventional Loans

Among all the loans, conventional loans are the most famous ones and usually the best option for savings after VA loans. Having said that, PMI is not required for conventional loans, which can increase your downpayment or monthly payments as an additional expense. The lender is protected by PMI if you fail to pay off your loan. These loans usually require a credit score of 640, and the debt-to-income ratio should be 43% or less. In contrast, Conventional loans have lesser downpayment requirements and better interest rates than other loans.

FHA Loan

FHA mortgage loans are for borrowers with lower credit scores, usually between 580 and 619. Keep in mind that the loan programs differ, so if you qualify for the credit score limit, look for different lenders that can provide the best financial choices. FHA loans require you to keep PMI for at least 11 years, which is a cost to be included in your mortgage and can considerably strain your budget. FHA loans usually have a higher debt-to-income limit of up to 50%, letting you buy more houses than a conventional loan if you have a low income. Lastly, the downpayment requirement of an FHA loan is as low as 3.5% of the buying price, so it could reduce the amount of money out of your pocket.

VA Loan

VA Loans don't technically have a credit score requirement. However, during the pre-qualification process, they look for any past-due debts that you owe to the government and defaulted loans. You must have served in the United States Military for at least 181 days, served 90 consecutive days during wartime, served six years in the National Guard, or have a spouse who died during active duty. The VA loan usually has the best interest rates available and usually does not require a down payment. The VA Loan is an ideal choice to reward our veterans who have given their service to the country.

Determining the credit score you need to buy a car

When it comes to buying a car, your credit history matters more than your credit score. While a good credit score is important, it has a minimal role in determining the interest rate for which you qualify. Your credit history and a detailed analysis of your past and current credit issues will determine the risk involved in approving your car loan. If you have a history of delayed payments, repossession or previous auto loan issues, your chances of loan approval could be lower. However, subprime lenders may work with people having poor credit histories, but they may ask for a higher down payment and additional dealership fees to approve you for the loan. In addition, dealerships could charge a fee to reduce the risk involved in loaning you money to buy the car you want. Therefore, when buying a vehicle on credit, it's important to have equity or a down payment to help your chances of approval.

Credit score range for a new car

Without factoring in other conditions, your credit score is just one factor in determining if you're a suitable candidate for a car loan, but a credit score over 680 is ideal. If your credit score falls below this mark, lenders may charge a higher interest rate to cover the risk they are taking on by loaning you the money. For example, someone with a credit score of 720 or more pays an average interest of $5,500 on the loan, while someone with a credit score of 680 pays $6,600, and someone with a credit score of 650 pays $8,100 in interest on the loan. A credit score of 615 or 580 scores or above means you will, on average, pay $10,200 or $13,900, respectively, in interest. This information shows that the higher your credit score, the less interest you'll pay, which will have a positive impact on your overall credit score.

Assistance with Boosting Your Credit Score:

If you want to increase your credit score, there are numerous things you can do to get started with minimal effort. However, it is important to understand that building a strong credit score takes time and cannot happen overnight. Therefore, you need to exercise patience because making impulsive decisions with your credit can lead to unfavorable outcomes.

Outlined below are three things to do right now that can improve your credit:

1. Obtain 3-5 revolving credit accounts:

   Securing revolving credit accounts can significantly impact your credit score as it constitutes approximately 30-35% of your overall score. Obtaining a large loan to build your credit score can be challenging, but with revolving credit, you can increase your chances of approval. It is advisable to start with a secured credit card from companies such as Open Sky or Credit Builder Card as they focus more on your payment capabilities. It may take up to four months for you to see credit score improvements, but it is crucial to pay your balance on time and maintain it between $5-$10 while using the credit card only for small purchases, for instance, gas or limited groceries.

2. Raise your credit limits:

   Requesting credit limit increases is another way to improve your credit score by lowering your credit utilization percentage. Credit cards with balances exceeding 30% of your overall limits can considerably affect your credit score. You can contact your credit card company either through their online portal or phone call to inquire about a credit limit increase. Your current income level and credit history will inform the decision by their credit team on whether or not to grant you a credit limit increase. Typically, excellent payment history should be evident for at least 7-15 months.

3. Pay down your balances:

   Keeping your credit balance low and near zero is essential. If you have high balances, you should make a plan to pay them down by setting aside a percentage of your paycheck each month. It is also advisable to limit your credit card usage to small purchases only and leave $1-$5 balance in your account each month. Remember, credit card usage is a significant factor in credit scoring, and minimizing your credit utilization is critical. Additionally, most credit cards charge high-interest rates, and payments mainly cater to interest rather than principal.

Tips from Joe on Improving Your Credit Score

It's common to experience a less than ideal credit score at some point in life. However, if you're serious about fixing your credit, you can make significant improvements in no time. Many people with poor credit get stuck in a cycle of financial difficulties that seem insurmountable. The good news is that with dedication and commitment to your finances, you can turn things around. Building up your credit score requires effort, but the reward is worth it. Follow these tips to get started:

Take stock of your current spending habits and make changes as needed.

Create a budget to help track your expenses.
1. Don't give up hope – you can achieve a great credit score with determination.

To learn more about credit, read on. And, if you need assistance along the way, my team at www.asapcreditrepairusa.com is here to help.