It's quite interesting to know that there are 30 different levels of credit scores. However, not many people are aware of this fact, which leads to confusion when they search for the best credit score on Google. It's common to receive varying answers, and the information can be misleading, resulting in a bleak situation. My name is Joe Mahlow, and I have been working in the financial literacy and credit repair sector for over 15 years. My objective is to offer valuable guidance on different topics, starting with credit scores. Over the years, I have helped over 20,000 clients improve their credit scores, and I am confident that I can provide you with adequate information to do the same. Let's dive into it.

Contents:

Understanding Different Credit Scores

Understanding what is considered a good credit score

What Credit Score is Needed to Buy a House?

Determining Your Credit Score Range When Buying a Car

Ways to Improve Your Credit Score

Tips from Joe on Improving Your Credit

Understanding Different Credit Scores

Credit scores are vital in determining your creditworthiness as it helps lenders gauge your ability to repay loans. There are two common credit scoring models—the FICO model and the Vantage model. Here’s what you need to know about each model:

1. FICO Credit Score

The FICO model is the most popular and widely used credit scoring model. With eight different FICO models, your credit report plays a significant role in determining which FICO credit score will be generated. Each FICO model considers specific factors with varying weights for different types of lenders. For instance, mortgage lenders usually pull FICO 5 credit reports, and your previous mortgage history plays a significant role in determining your score. In contrast, credit card companies primarily use the FICO 8 report, and your previous credit card history will have the most significant impact on your score.

2. Vantage Credit Score

The three major credit reporting agencies (Equifax, Experian, and TransUnion) developed the Vantage Score to compete with the FICO score. Although still gaining popularity in the lending sector, it is widely used for free credit reports by credit monitoring websites. Unlike the FICO model, the Vantage score weighs specific factors equally in determining your score, making it a general idea of your FICO score.

Accuracy of the Vantage Score

The Vantage score is accurate in providing a general idea of your credit score, but it may not be as precise as the FICO score, which is the most recognized scoring model. Vantage scores may not be as accurate when it comes to your actual lending score. However, as the Vantage scoring model continues to gain popularity, it may provide the best-scoring models based on today's creditworthiness standards. Remember that credit reporting agencies have vast data on credit histories and, therefore, have the upper hand in providing the best scoring data.

Understanding what is considered a good credit score

Credit scores for both the FICO and Vantage models range between 350 and 850, with 350 being the worst score, and 850 being the best. When aiming for the highest score possible, it's important to know where you stand along the way. Here are some important credit score thresholds to consider:

1. 620 or below

A score below 620 is considered bad credit, reflecting adverse credit history, possibly high-balance credit card accounts, or a lack of credit cards. Improving your credit score requires timely payments and ten active revolving credit accounts. Consider using a secured credit card like the Credit Builder Card or OpenSky Credit Card, which can help build credit. A 620 credit score or higher allows qualification for an FHA home mortgage.

2. 640-680

A score between 640-680 is considered fair. It generally indicates established credit history but may contain derogatory marks, high credit card balances, or newly opened accounts that can cause a temporary drop in your score. Don't panic if this occurs.

3. 740+

A score over 740 is considered "super-prime" and provides the best interest rates for most loans. Congrats if you have a score above 740 as you belong to the top 20% of the US population with this score. Keeping an outstanding credit score requires paying accounts on time and maintaining low revolving credit card account balances.

What Credit Score is Needed to Buy a House?

The minimum credit score required to obtain a mortgage and purchase a house depends on the type of loan you are applying for. The requirements and guidelines for most mortgage loans, such as conventional, Federal Housing Administration (FHA), and Veteran Affairs (VA) loans, are similar but have some differences due to federal regulation and government backing.

1. Conventional Loans

Conventional is the most popular type of mortgage and typically the best option outside of a VA loan. With conventional loans, private mortgage insurance (PMI) isn't required, so there is no added cost, and down payment requirements are usually lower, with better interest rates compared to other loans. The typical credit score requirement for conventional loans is at least 640, with a debt-to-income ratio no higher than 43%.

2. FHA Loans

FHA loans are for borrowers with lower credit scores ranging from 580 to 619. You will have to keep PMI for at least 11 years, which can add to the cost of your mortgage. The debt-to-income limit on an FHA loan is usually higher, up to 50% maximum, if you have a lower income. A minimum of 3.5% down payment is required, and the interest rate may be higher than a conventional loan.

3. VA Loans

VA loans do not have a minimum credit score requirement, but they look for previous defaulted loans and any government-owed debts when pre-qualifying you. To qualify, you must have served in the United States Military for at least 181 days, 90 consecutive days during wartime, 6 years with the National Guard, or have a spouse who lost their life during active duty. The VA loan typically has the best interest rates and does not require a down payment, making it an ideal option for veterans.

Determining Your Credit Score Range When Buying a Car

When planning to purchase a car, your credit history outweighs your credit score in determining your eligibility. Although a high credit score is beneficial, it only plays a minor role in determining your interest rates.

This is because your credit history shows the risk involved in extending credit when you apply for a car loan and have had previous credit issues. For instance, having a repossession or being late on a current or past auto loan makes getting approved for a loan more challenging. Nonetheless, even with poor credit, certain lenders qualify anyone for a loan, but they add specific conditions you must meet, like a higher down payment and additional dealership fees. This fee covers the dealership's risk and, as a result, they may have to choose the car you can get approved for. Finally, having equity or a downpayment will give you more leverage when purchasing a vehicle on credit.

When buying a new car, there isn't an exact credit score that approves or disqualifies you from getting a loan. However, if you have a credit score above 680, you are more likely to qualify for loans with favorable interest rates. The table below indicates what interest rate averages to expect with your credit score range:

1. 720 credit score and above:

Pay an average of $5,500 in interest on loans.

2. 680 credit score and above:

Pay an average of $6,600 in interest on loans.

3. 650 credit score and above:

Pay an average of $8,100 in interest on loans.

4. 615 credit score and above:

Pay an average of $10,200 in interest on loans.

5. 580 credit score and above:

Pay an average of $13,900 in interest on loans.

6. Credit score of 580 or below:

Pay an average of $15,300 in interest on loans.

Based on the data, you can observe that having a higher credit score reduces the interest rate you pay, which positively affects your overall credit score.

Ways to Improve Your Credit Score

Improving your credit score is possible with simple actions that require patience and time. It is important to avoid making irrational decisions, which may lead to worsening your financial issues. Here are some things you can do now to improve your credit:

1. Open 3-5 credit card accounts:

Revolving credit is a good option to maximize your credit scores. Obtaining a large loan for someone with limited credit or rebuilding their credit may take a lot of work. A secured credit card such as Open Sky or Credit Builder Card, which focus on your ability to pay and income rather than credit scores, will have a higher chance of approval. Revolving credit makes up 30-35% of your credit score, and it can take 2-4 months to show an increase. Be sure to pay your balance on time and keep it between $5-$10 each time you make a payment, limiting the use of the card to small purchases.

2. Request a credit limit increase:

Increasing your overall credit limit and lowering your credit utilization percentage can help improve your credit score. You can request this through your credit card company's online portal or by calling them. Generally, they want to see 7-15 months of excellent payment history before agreeing to this.

3. Pay down your balances:

Keep your balance low and close to zero by using your credit cards for small purchases only. Leave about a $1-$5 balance on your credit cards when paying your bill each month. If you have high balances and cannot pay them off, create a payment plan from a percentage of your paycheck each month. Limit your credit card usage and avoid running up the balance. Remember, credit card spending habits play a crucial role in determining your credit score, and most payments go towards interest rather than principal.

Tips from Joe on Improving Your Credit

Credit issues can happen to anyone, and it's understandable to feel discouraged when you're dealing with a bad credit score. However, taking the time and effort to address your credit situation can result in significant improvements to your credit score. Unfortunately, many people with poor credit become trapped in a cycle of credit problems and assume that having good credit is impossible. Achieving an excellent credit score requires hard work, but with dedication and a focus on improving your spending habits, you can achieve your goal. Begin by creating a budget and working on fixing any bad spending habits you have and watch as your credit score improves. This article aims to assist you in understanding credit. If you're in need of help with your credit score or credit repair, get in touch with my office today at www.asapcreditrepairusa.com.

Key Tips:

• Understand that bad credit can happen to anyone.
• Putting in time and effort to work on your credit can lead to significant improvements.
• Many people with poor credit assume that having good credit is impossible.
• Achieving a great credit score requires hard work.
• Creating a budget and working on improving your spending habits can help boost your credit score.

Contact www.asapcreditrepairusa.com for assistance with credit repair.