It's a little-known fact that credit scores come in 30 different levels. Unfortunately, many people are not aware of this and struggle to find reliable answers when seeking out the best credit score. With countless sources available online, it's understandable to feel overwhelmed by the sheer amount of information available and the potential for it to be misleading. Joe Mahlow here, a financial literacy and credit repair expert with over fifteen years of experience. My aim is to provide you with honest advice on various topics, starting with credit scores. Having already helped over twenty thousand clients improve their credit scores, I'm confident that I can equip you with enough knowledge to make the same transformation. So without further ado, let's dive into it.

Contents:

Different Types of Credit Scores: FICO and Vantage

Understanding Good Credit Scores

Determining a Good Credit Score for Buying a House

Determining a Good Credit Score for Buying a Car

Tips for Improving Your Credit Score

Joe's Insight on Taking Charge of Your Credit

Different Types of Credit Scores: FICO and Vantage

As a borrower, it is essential to understand the different credit scoring models to manage your credit effectively. Two of the most crucial credit scoring models that you should be familiar with are the FICO model and the Vantage model. The FICO model is the most commonly used credit scoring model, while the Vantage model is gaining popularity in some sectors. Here is everything you need to know about these two models.

FICO Credit Score

FICO credit scoring model is the most popular and widely used scoring model with different FICO models ranging from FICO 2 to FICO 10. The different FICO models can yield varying credit scores depending on your credit report content. The kind of FICO report a lender pulls is also dependent on the type of credit you are applying for. For instance, when applying for a home mortgage, a lender would most likely pull your FICO 5 credit report, and FICO 8 credit reports are primarily used by credit card companies.

Why so many FICO scores?

Each credit report has a varying weight, meaning that certain factors may influence your credit score more than others, depending on the type of credit you are applying for. For example, a previous history of mortgage payment may impact your credit score more when applying for a home mortgage. You can visit www.myfico.com to see your different FICO credit scores.

Vantage Credit Score

The Vantage Score is a new scoring model developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion) as a competitor to the FICO model. While FICO dominates the lending sector, Vantage is gaining popularity in some sectors, such as personal loans and auto lending. While the Vantage Score is not widely used for lending purposes, it can provide a general idea of your FICO credit score.

Is the Vantage Score Accurate?

While the Vantage Score is accurate, it depends on the context. Since FICO remains the most recognized scoring model, Vantage's accuracy can vary. Using your Vantage Score can give you a rough idea of your overall credit scores in the absence of your FICO scores. Over time, the Vantage scoring model may become the go-to scoring model for lenders seeking to provide the best scoring data.

Understanding Good Credit Scores

Good credit scores can be determined by both the FICO and Vantage scoring models, and they range from 350-850. 850 is the highest score, while 350 is considered the lowest score possible. Setting goals to achieve the highest possible scores is essential, but it's also important to understand where you stand at different stages of your credit-building journey. Here are some score thresholds to guide you:

1. 620 or below:

This is considered bad credit. If you're in this range, you may have adverse credit history, high-balance credit cards, or no credit at all. To improve your credit score, make sure to pay your bills on time and have at least ten active revolving credit accounts. Consider using a secured credit card like the Credit Builder Card or OpenSky Credit Card.

2. 640-680:

This is considered fair for good credit. Having scores in this range indicates that you have established credit but may have derogatory marks or high balances on your credit cards. Recently opened accounts can also temporarily drop your scores. Don't worry if this happens, as your scores will eventually return.

3. 740+:

Any credit score over 740 is considered "super-prime" and will provide the best interest rates for most loans. If you have a score of over 740, you are part of the 20% of the US population with this score. Keep up the good work by paying your bills on time and keeping your revolving credit card accounts paid.

Determining a Good Credit Score for Buying a House

Your credit score needed for buying a house depends on the type of mortgage loan you are applying for. Mortgage loans have varying requirements and guidelines due to federal regulation and government backing. The most common mortgage loan types are conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans are the top loan choice and offer great savings outside of VA loans. Unlike other loans, conventional loans do not require private mortgage insurance (PMI), which could increase your downpayment or monthly payment. Conventional loans typically have lower downpayment requirements and better interest rates. To qualify for a conventional loan, lenders will assess your credit score, which should be a minimum of 640. Lenders will also check to ensure that your debt-to-debt ratio is not higher than 43%.

2. FHA Loans

The FHA mortgage loan is for people with lower credit scores typically between 580 and 619. However, loan programs are different, so it's wise to shop around for lenders who offer reasonable rates based on your credit score range. You will be required to keep PMI for at least 11 years, which can be a burden on your budget. Unlike conventional loans, FHA loans have a debt-to-debt ratio limit of up to 50%, enabling you to buy more homes if you have a lower income. The downpayment requirement for an FHA loan is as low as 3.5%, which means you could get into a mortgage with less out of pocket expenses. However, you will typically have a higher interest rate.

3. VA loans

If you have served in the US military, you can apply for VA loans, which have no specific credit score requirement but are looking for any previous defaulted loans and government-owed overdue debts before pre-qualifying you. To qualify, you must have served in the military for at least 181 days, served 90 consecutive days during wartime, or served six years with the National Guard, or your spouse lost their lives in active military service. VA loans typically offer the lowest interest rates and do not require a down payment. It is a fitting tribute to our veterans.

Determining a Good Credit Score for Buying a Car

When it comes to buying a car, your credit history holds greater weight in determining your eligibility for a loan than your credit score. Although a higher credit score is important, it's not the sole factor that influences the interest rate of your loan. Lenders investigating your credit may take into account any credit issues you have encountered while acquiring a car loan, including late payments or repossession. Those with a better credit history are more likely to be approved for a loan as compared to someone with a questionable credit history. However, bad credit or special finance lenders tend to approve almost anyone for a car loan, but they require higher down payments and additional dealership fees to mitigate the risk of defaulting. This may limit your purchasing power since dealerships may select a specific vehicle to approve you for that has a higher markup, thus generating enough money from the sale to cover the loan's dealership fee.

For a new car, there is no defined credit score for approval.

However, having a credit score of over 680 is ideal to minimize the risk you pose to the lender, reduce the interest rate you may be charged, and increase your chances of approval. A person's credit score influences the amount of interest they will pay over time; the lower the credit score, the higher the interest rate will likely be. For instance, a person with a credit score of 720 or above will pay an average of $5,500 in interest for a loan, while someone with a credit score below 580 will pay approximately $15,300 in interest. This data shows that maintaining a good credit score significantly lessens the interest paid and benefits your overall credit score. Lastly, having a downpayment or equity gives you more bargaining power when you want to buy a car on credit.

Credit score ranges for a new vehicle:

1. A credit score above 720 pays approximately $5,500 in interest.

2. A credit score above 680 but less than 720 pays approximately $6,600 in interest.

3. A credit score above 650 but less than 680 pays approximately $8,100 in interest.

4. A credit score above 615 but less than 650 pays approximately $10,200 in interest.

5. A credit score above 580 but less than 615 pays approximately $13,900 in interest.

6. A credit score of 580 or less pays approximately $15,300 in interest.

Tips for Improving Your Credit Score

Improving your credit score takes time and patience. Rather than making irrational decisions, take steps to help increase your credit score with little effort. Here are some things you can do to improve your credit:

1. Open 3-5 revolving credit accounts:

Revolving credit is one of the best options to help maximize your credit score. For those with limited or damaged credit, building credit by obtaining a large loan can be challenging. Instead, consider opening a secured credit card that doesn’t focus solely on your credit score but rather on your ability to make payments on time. Revolving credit makes up 30-35% of your overall credit score and can help build credit scores quickly. Be sure to make timely payments and keep your balance at $5-$10 each time you make a payment, limiting your usage to small purchases such as gas or simple groceries.

2. Raise your limits:

If you have active revolving credit card accounts, requesting a credit limit increase can help increase your overall credit limits and lower your credit utilization percentage. To do this, you can contact your credit card company and request a “Credit Limit Increase,” which will require you to fill out some information, including your current income. Typically, companies will want to see 7-15 months of excellent payment history on a credit card before granting a credit limit increase.

3. Pay down your balances:

Keeping your balance low and close to zero is essential for good credit. Instead of using your credit card for large purchases, limit your usage to small purchases. Make sure to leave $1-$5 balance on your credit cards each month, paying down your balances and ultimately stopping the usage of your credit cards altogether. High balances on a credit card can be detrimental to your credit score. Therefore, it's critical to limit your usage and create a plan to take an “x” percentage of your paycheck each month to pay off your credit card.

Joe's Insight on Taking Charge of Your Credit

We've all experienced the disappointment of having less-than-perfect credit. However, if you approach your credit situation with the seriousness it deserves and work diligently to improve your credit habits, you can witness significant progress in your credit score in no time. Most individuals with poor credit fall into the trap of accepting their financial predicament as a permanent state, when in reality, it requires intentional effort to attain a great credit standing. As such, prioritizing your credit and modifying your spending patterns are crucial steps towards reclaiming your financial freedom. Begin by devising a realistic budget and identifying areas where you need to change your spending routine, and your efforts will directly reflect in your credit score. To better comprehend the workings of credit, consult this article, and if you require professional assistance, visit our office at www.asapcreditrepairusa.com.

Here are the main points of Joe's message:

1. Having bad credit is a common issue that needs attention.

2. Making an effort to work on oneself and credit will yield results quickly.

3. Many believe fixing their credit is insurmountable, which is not accurate.

4. Achieving a great credit score takes work and focus.

5. Prioritizing credit and reviewing spending behaviors are crucial toward financial success.

6. Develop a realistic budget and modify your spending scheme to improve your credit score.

7. Visit Joe's office at www.asapcreditrepairusa.com for further assistance.