It may come as a surprise to most people that there are in fact 30 different levels of credit scores. When searching for the best credit score on Google, people usually find a lot of different answers that can be confusing or even deceptive, leading them down a confusing path. Joe Mahlow is a financial literacy and credit repair expert with over fifteen years of experience. His mission is to provide honest advice on various topics, including credit scores. Throughout the years, Joe has managed to positively impact more than twenty thousand clients by significantly improving their credit scores. His ultimate goal is to empower his audience with the right information so that they can achieve the same results. Let's delve into this topic together.

Contents:

Different Types of Credit Scores Explained

Understanding Credit Score Ranges

Ideal Credit Score for Home Loan

What is a Good Credit Score for Buying a Car?

Tips for Improving Your Credit Score

Tips from Joe for Improving Your Credit

Different Types of Credit Scores Explained

Credit scores are typically calculated based on different scoring models used by credit bureaus. The two renowned credit scoring models are the FICO model and the Vantage model. As a consumer, it is essential to understand how both models work and how they will affect your credit score.

FICO Credit Score

FICO is the most commonly used credit scoring model worldwide, consisting of eight different models, such as FICO 2 to FICO 10. Lenders such as mortgage and credit card companies use different models based on what factors crucial to their lending decision. As a result, each FICO model will produce a different credit score based on your credit report. The FICO 5 report, for example, is commonly used by mortgage lenders, while FICO 8 reports are primarily used by credit card companies.

Why So Many FICO Scores?

Each FICO model has a unique weight allocated to different elements present in credit reports. For instance, the FICO 5 report evaluates previous mortgage history primarily, while the FICO 8 report focuses on credit card history. This explains why your credit score may vary depending on the specific FICO model that lenders use.

Vantage Credit Score

The Vantage scoring model is a new alternative to the traditional FICO model and is gaining popularity in some lending sectors, such as personal loans and auto lending. Vantage scores can be received for free from credit monitoring websites such as Equifax, Experian, and TransUnion. Unlike FICO scores, Vantage scores are not widely used for lending purposes, so their accuracy can differ with FICO scores. Therefore, they are best used as a good “general idea” of your FICO score.

Is the Vantage Score Accurate?

The Vantage Score is a reliable alternative to FICO, but its accuracy varies depending on the lending sector. Credit scores are only as accurate as a lender's ability to provide a loan, which is why the FICO model is currently the most recognized scoring model. However, in the next 5-10 years, lenders may begin using the Vantage scoring model more widely due to its ability to provide the best scoring models based on today's standards.

Understanding Credit Score Ranges

When it comes to credit scores, both FICO and Vantage models rank scores from 350 to 850. While a higher number is always better, it's important to know where you stand on the scale. Here are some score thresholds to keep in mind:

1. 620 or below:

This range is considered bad credit. If you're here, it's likely because of adverse credit history, high-balance credit card accounts, or a lack of credit cards altogether. Maintaining ten active revolving credit accounts and making timely payments is the best way to improve your score. Consider secured credit cards, such as the Credit Builder Card or OpenSky Credit Card, to help you build your credit. When you reach the 620 range, you can start qualifying for an FHA home mortgage.

2. 640-680:

Falling within this range is considered fair for good credit. Scores in this range may indicate established credit but with some derogatory marks or high balances on your credit cards. It's also common to experience temporary drops in scores due to newly opened accounts. So, don't panic if you fall into this range and recently opened a new account.

3. 740+:

Anything above 740 is considered "super-prime" and can get you the best interest rates for most loans. Congratulations if you're here because you're part of the 20% of the US population with this score. To maintain this score, always pay your accounts on time and keep your revolving credit accounts paid. You're in great shape!

Ideal Credit Score for Home Loan

The required credit score to obtain a home loan varies based on the type of loan you are applying for. The rules and regulations for most mortgage loans are usually similar, if not the same. There are three main types of mortgage loans: conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most common loans and are typically the best option to save money aside from the VA loan. A conventional loan does not require private mortgage insurance (PMI), which can be an additional cost to the down payment or monthly payment. PMI protects the lender in the event where borrowers no longer make loan payments. Conventional loans usually possess better interest rates and require a lower down payment than other loans. The normal credit score needed for a conventional mortgage loan is 640, and the debt-to-income ratio cannot exceed 43%.

FHA Loan

The FHA loan is for borrowers with lower credit scores, with a range typically between 580 and 619. Remember to shop around for different lenders since all loan programs are different, so you can find the best financial offer if your credit score is within the loan limit. An FHA loan necessitates maintaining PMI for up to 11 years, which might affect your mortgage and overall budget. This loan typically allows borrowers to purchase more houses than a conventional loan with a higher debt-to-income limit of up to 50%, making it a viable option for those with lower income. Lastly, the down payment requirement for an FHA loan is as little as 3.5%, enabling you to access a loan with less money compared to a traditional loan, but at the cost of a higher interest rate.

VA Loan

The VA loan technically does not require a specific credit score, but the military checks for previous defaulted loans and past-due debts owned to the government when pre-qualifying you. To qualify for a VA loan, you must have served in the United States Military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or have a spouse who died on active duty. The VA loan usually offers the lowest interest rates available and typically does not require a down payment. The VA adjusts to the needs of our veterans, making it our preferred loan.

What is a Good Credit Score for Buying a Car?

When it comes to purchasing a car, you may wonder what credit score is considered acceptable. While a high credit score is important, it is not the only factor that determines whether you qualify for an auto loan. Rather, lenders will closely examine your credit history to determine the risk that comes with extending credit. Late payments on a previous or current auto loan, as well as repossessions, can make it challenging to secure approval for a car loan. Nonetheless, special finance and subprime lenders may qualify you for a car loan even if you have a poor credit history, provided you meet certain criteria, such as paying a higher down payment or additional fees. Car dealerships may also charge extra fees to help reduce the risk of you defaulting on a loan. To enhance your chances of obtaining a loan, make sure to have a down payment or equity.

Credit Score Range for New Car

There isn't an exact credit score that will guarantee approval, as lenders consider an array of factors. However, a credit score above 680 is generally considered excellent, whereas anything below this score increases the risk to lenders and results in higher interest rates. Your credit score can significantly impact the interest paid on a loan. For instance, a person with a credit score of 720 and above will typically pay around $5,500 in interest, while someone with a 580 credit score will pay on average $15,300 in interest. As seen from this data, the interest rate you are charged will decrease as your credit score increases.

Tips for Improving Your Credit Score

Improving your credit score requires effort and patience. It won't happen overnight, but taking these steps can help you see results.

1. Open 3-5 revolving credit accounts:

Revolving credit, such as credit cards, is a great way to improve your credit score quickly. Start with a secured credit card, such as Open Sky or Credit Builder Card, and limit your usage to small purchases like gas or groceries. Be sure to pay your balance on time and keep it around $5-$10 each time. Revolving credit makes up 30-35% of your overall credit score.

2. Raise your limits:

Request a credit limit increase for your credit cards to help increase your overall credit limits and lower your credit utilization percentage. Call your credit card company and request a "Credit Limit Increase." Be sure to have a good payment history before you request an increase.

3. Pay down your balances:

Keep your balance low and close to zero. Leave a small balance of $1-$5 on your credit cards each month. If you have high balances, make a plan to pay them down with a percentage of your paycheck each month. Avoid running up the balance again, as your spending habits play a crucial role in your credit score.

Remember, building a good credit score takes time and effort. Be patient, and avoid making irrational decisions that could worsen your credit score.

Tips from Joe for Improving Your Credit

Let's face it, many of us have experienced a less than ideal credit score. However, by taking responsibility for your current credit situation and dedicating the time and effort to improving it, you can dramatically enhance your credit score in a short amount of time. Sadly, numerous consumers who have poor credit fail to break out of this endless cycle and come to believe that good credit is impossible to achieve. In reality, building a solid credit score necessitates substantial effort, and those who prioritize their credit and spending habits will ultimately succeed. The first step is to establish a budget and start working on any bad spending habits you may have; this effort will translate directly into your credit score. This brief article provides valuable insights into credit. If you require assistance with your credit score, including credit repair services, please do not hesitate to contact my office at www.asapcreditrepairusa.com.

Tips from Joe for Improving Your Credit

Budget-ing and Fixing Bad Habits Directly Affects Your Credit Score

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