It may surprise you to know that there are actually 30 different levels of credit scores. Despite its importance, many people aren't aware of this fact and end up receiving conflicting information when they search for the best score. While the volume of information out there may seem overwhelming, it's important to be aware of misleading or dubious sources. That's where I come in: my name is Joe Mahlow, and I've been working in the financial literacy and credit repair industry for over 15 years. My aim is to provide you with straightforward advice and insights into important topics, such as credit scores. Over the years, I've helped more than 20,000 clients boost their credit scores, and I'm excited to share what I've learned with you. Get ready to learn more!

Contents:

Different Types of Credit Scores: FICO vs. Vantage

Determining a Good Credit Score

What is an Acceptable Credit Score for Buying a House?

Determining Your Credit Score for a Car Loan

Tips for Improving Your Credit Score

Advice from Joe on Improving Your Credit

Different Types of Credit Scores: FICO vs. Vantage

Credit scores are an essential factor in determining your eligibility for loans and credit. The two main credit scoring models that you should know about are the FICO model and the Vantage model. Each model has its own way of calculating credit scores, making it crucial to understand the differences between them.

FICO Credit Score:

The FICO model is the most popular and widely used credit scoring model available. With eight different FICO models, lenders will usually pull a different credit report depending on what type of credit you are applying for. For example, if you were applying for a mortgage, they would pull an FICO 5 credit report, whereas if you were applying for a credit card, they would pull an FICO 8 credit report.

The different FICO models exist because each credit report has a different "weight." Factors that are vital to the lender will have a more significant impact on the credit score than other factors. For example, an FICO 5 mortgage report would place more weight on previous mortgage history than other reports.

Vantage Credit Score:

The three major credit reporting agencies developed the Vantage Score scoring model to compete with the FICO scoring model. Although FICO is currently dominant, the Vantage model is gaining popularity in some sectors such as personal loans and auto lending. It is important to note, however, that since the Vantage score is not widely used for lending purposes, it may not reflect your actual lending score. It can still provide a good "general idea" of your FICO score, which is helpful since lenders often use FICO to determine eligibility for loans and credit.

It is possible that Vantage may become more widely used in the next 5-10 years, thanks to its more modern approach to credit scoring. Currently, the FICO model is outdated and doesn’t give users a clear representation of their credit scores. It is important to monitor both FICO and Vantage scores to ensure that your credit score is accurate and up-to-date. If you want to see all your different credit scores, you can sign up for an account at www.myfico.com.

Determining a Good Credit Score

Credit scores determined by both the FICO and Vantage models range from 350 to 850, where 350 is the worst and 850 is the best. It is vital to know where you are throughout your credit-building journey, so you can set goals to have the highest scores. To assist you in this, the following is a summary of important credit score thresholds:

1. 620 or below: Bad Credit

If your credit score is below 620, it is considered bad credit. This implies that you may have adverse credit history, high-balance credit card accounts, or no credit cards at all. Ten active revolving credit accounts and timely payments are recommended to improve your credit score. In particular, we suggest using secure credit cards such as the Credit Builder Card or OpenSky Credit Card to help you build your credit. Once you reach a credit score of 620, you qualify for an FHA home mortgage.

2. 640-680: Fair to Good Credit

A score between 640-680 falls into the fair to good credit category. A score within this range indicates that you have established the credit but possess derogatory marks or accounts. In addition, you may have high balances on your credit cards, which you will need to pay down. The opening of new accounts can also temporarily lower your score. Do not worry if this happens, as it is a transient drop in your scores.

3. 740+: Super-Prime Credit

Any credit score above 740 is considered "super-prime." Having a score over 740 will give you the best interest rates for most loans. Therefore, congratulations are in order if you fall into the 20% of the US population with this score. Keep up the excellent work, maintaining timely payments, and paying your revolving credit card accounts, and you will be in great shape!

What is an Acceptable Credit Score for Buying a House?

The credit score requirement for a mortgage loan varies depending on the type of loan you are looking for. Most mortgage loans have similar requirements and guidelines due to government regulations and support, while others may have different requirements. The most common types of mortgage loans are conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans are popular loans and the best savings loan option outside the VA loan. Private mortgage insurance is not required with conventional loans, which can increase your monthly payment or downpayment. The credit score requirement for a conventional loan is typically 640, and the debt-to-debt ratio should not be higher than 43%. Downpayment requirements for conventional loans are usually low and have better interest rates than other mortgage loans.

2. FHA Loan

FHA loans are for lower credit scores, usually between 580 and 619. Different lenders provide better financial options, so be sure to shop around. PMI for an FHA loan is needed for at least 11 years and is an additional mortgage cost. FHA loans typically have a debt-to-income limit of up to 50%, allowing you to purchase more homes if you have lower income. Downpayment requirements for FHA loans are as low as 3.5% of the purchase, while the interest rate is usually high.

3. VA Loan

The VA loan has no credit score requirement, but you must have previous defaulted loans and owed past-due debts to the government for pre-qualification. To be eligible for a VA loan, you must serve or have served in the United States Military for at least 181 days, served 90 days during wartime, served six years with the National Guard, or your spouse was in the military and lost their lives during active duty. VA loans usually offer the best interest rates without requiring a down payment. VA loans are perfect for our veterans.

Determining Your Credit Score for a Car Loan

When taking out a car loan, the credit history you have built up is more important than your credit score. While having a higher credit score is beneficial, it doesn't play as significant a role in your interest rate. Financial institutions gauge your risk level by evaluating your current and previous credit history, rather than just your score. If you've missed payments on your auto loans or gone through repossession, it will be harder for you to secure a loan than for someone who has a clean credit history.

If you have bad credit

There are more lenient lenders that can still approve you for a car loan. However, qualifying comes with certain requirements, such as larger down payments and additional dealership fees. The dealership you purchase from has to pay a fee to reduce the chance of you defaulting on the loan and increase your chances of being approved. In addition, those with equity or a down payment have the most bargaining power when negotiating the terms on which to buy a vehicle on credit.

Credit score requirements

While there isn't an exact score that guarantees approval, a credit score over 680 is ideal. If your score falls below this, you will be considered a higher risk and, therefore, might have to pay higher interest rates. The following statistics show the difference in interest rates based on credit scores:

1. 720 or above: $5,500 interest on average

2. 680 or above: $6,600 interest on average

3. 650 or above: $8,100 interest on average

4. 615 or above: $10,200 interest on average

5. 580 or above: $13,900 interest on average

6. Below 580: $15,300 interest on average

In conclusion, having a higher credit score can reduce the amount of interest you ultimately pay when purchasing a car on credit. However, your credit history carries more value in determining your risk level when borrowing.

Tips for Improving Your Credit Score

Improving your credit score may take time and patience, but there are several steps you can take to help increase it. Here are some things you can do right now:

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

Revolving credit accounts, such as credit cards, are a great option for building your credit score. If you have limited credit or are trying to rebuild your credit, it can be easier to obtain approval for a credit card than a large loan. Consider applying for a secured credit card like Open Sky or Credit Builder Card, which focus more on your ability to pay on time rather than your credit score. Revolving credit accounts make up 30-35% of your overall credit score and can help improve it quickly if you pay your balance on time and keep it low. Limit your card usage to small purchases like gas or groceries and keep the balance between $5-10.

2. Request a Credit Limit Increase

If you have active revolving credit accounts, you can request a credit limit increase to help boost your overall credit limits and lower your credit utilization percentage. Most credit card companies allow you to request a limit increase online or by phone. Be sure to have excellent payment history for 7-15 months before requesting an increase.

3. Pay Down Balances

Keeping your balance low and paying your credit cards on time is crucial for your credit score. If you have high balances, create a game plan to pay them down each month. Limit your credit card usage to avoid high-interest rates and disproportionately high payments towards interest instead of the principal. Leaving a small balance of $1-5 on your credit cards after paying them off helps show active credit usage.

Remember, building good credit takes time and patience. These tips can help you improve your credit score, but be sure to always make payments on time and avoid running up high balances.

Advice from Joe on Improving Your Credit

Let's face it - we've all been in a position where our credit score is less than ideal. However, if you're serious about improving your current credit situation, you'll see significant changes in your score in a relatively short time. Many individuals with bad credit feel stuck in a vicious cycle, unable to believe that good credit is attainable. Nevertheless, building an exceptional credit score requires effort, and those who prioritize their credit and spending habits are the ones who will succeed. Begin by developing a budget and addressing any negative spending patterns you may have - this will have a direct impact on your credit. This article offers valuable insight into the credit system. If you require further guidance or assistance with credit repair, don't hesitate to contact my office at www.asapcreditrepairusa.com.