It's fascinating to learn that there are actually 30 different levels of credit scores. It's surprising how many people are unaware of this fact, and often find themselves confused when searching for information about the best credit score. A simple Google search can provide various answers, but more often than not, the information can be misleading and confusing. My name is Joe Mahlow and I have been in the field of financial literacy and credit repair for more than fifteen years. My ultimate goal is to provide you with genuine advice on different topics including credit scores. Having assisted over twenty thousand clients in transforming their credit scores, I'm hopeful that I can provide you with information to do the same. So let's delve into it!

Contents:

Understanding Credit Scores

Understanding Good Credit Score

Title: Minimum Credit Score for Mortgage Loan Qualification

How Your Credit History Affects Car Loan Approval

Ways to Improve Your Credit Score

Insights by Joe

Understanding Credit Scores

Credit scores are crucial in determining your eligibility for credit and the interest rate you pay. Two credit scoring models, FICO and Vantage, help establish your credit scores. It's essential to understand how each works, especially the differences in how they calculate your credit score.

FICO Credit Score

FICO scores are used most commonly in the lending sector, with eight different models from FICO 2 to FICO 10. Lenders use a particular FICO report depending on the type of credit you are applying for. For example, mortgage lenders typically pull your FICO 5 report, while credit card lenders mainly use FICO 8 reports. Each model weighs the critical factors based on the credit type, including mortgage, credit card, or auto lending, that has the most significant impact on the credit score. To comprehend your FICO scores, sign up for an account at www.myfico.com.

Vantage Credit Score

Vantage Score is a newer scoring model that the three major credit reporting agencies, Equifax, Experian, and TransUnion, developed to compete with FICO. Although the FICO model dominates lending, the Vantage model is gaining popularity in some sectors, such as personal loans and auto lending. While the Vantage Score is accurate, its actual lending score accuracy varies, considering FICO as the most recognized score. Using the Vantage score as a “general idea” of your FICO score can help give you a rough idea of your overall scores.

FICO vs. Vantage Scores

Credit reporting agencies have the most significant data collection agencies outside social media companies. If they have access to the data, they have the upper hand in providing the best scoring data. The FICO scoring model is seen as outdated, and the Vantage scoring model's popularity is growing, given its ability to provide the best scoring models based on today's standards. Lenders will likely adopt the Vantage Score in the next 5-10 years.

Understanding Good Credit Score

Good credit scores fall into the range of 640-850 for both FICO and Vantage models, with 850 being the best and 350 being the worst score possible. To achieve a high score, you need to monitor your progress from the start of building your score. Below are some essential score thresholds to guide you on your journey towards achieving good credit:

1. 620 or below:

This is a bad credit score, indicating that you have an adverse credit history or high-balance or no credit card accounts. It's advisable to develop a habit of making timely payments and having at least ten active revolving credit accounts. Secured credit cards like the Credit Builder Card or OpenSky Credit Card can aid in building your credit. When you attain this score range, you can start qualifying for an FHA mortgage.

2. 640-680:

This score range is considered fair for good credit. It means that you have established credit but may have derogatory marks or high-balances on your credit cards that you need to pay down. Also, newly opened accounts can cause a temporary drop in your score.

3. 740+:

This score range is considered super-prime and gives you the absolute best interest rates for most loans. If you have a score in this range, congratulations, you're part of the 20% of the US population with this score. Keep up the great work and always pay your accounts on time, and your credit cards' revolving accounts paid to maintain and improve your score.

What is the minimum credit score to qualify for a mortgage loan?

The credit score needed to qualify for a mortgage loan varies depending on the type of loan you are applying for. Federal regulation and government backing have resulted in similar, yet distinct, guidelines and requirements for most mortgage loans. The three most prevalent loan types are the conventional loan, the FHA loan, and the VA loan.

Conventional loans:

Conventional loans, the most sought after loans, are a great savings option outside of the VA loan. These loans do not demand private mortgage insurance (PMI). This saves on extra costs that could add to your down-payment or monthly payments. A credit score of 640 and a debt-to-income ratio no higher than 43% are typical requirements for conventional mortgage loans. Moreover, these loans have low down-payment requirements and advantageous interest rates.

FHA loans:

A typical mortgage loan for lower credit scores is the FHA loan, with credit scores between 580 and 619. You should always investigate different lenders because all loan programs have distinct rules. The FHA loan scheme generally requires PMI for 11 years, which can be an added cost. The FHA loan provides a broader debt-to-income limit of up to 50% for a lower-income individual. Lastly, the down-payment requirements are as low as 3.5% of the purchase price, which is less than conventional loans, but the interest rate is generally higher.

VA loans:

VA loans do not technically impose a credit score requirement. However, when you pre-qualify, previous defaulted loans and any government-owed past-due debts will be reviewed. To qualify for the VA loan, you must have served in the United States military for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or be the surviving spouse of a military person who was killed during active duty. The interest rates on VA loans are often the best. Also, VA loans usually do not require a down-payment. The reality that it rewards our veterans makes the VA Loan my favorite, utanly lending hand to the armed forces.

How Your Credit History Affects Car Loan Approval

When looking to finance a car, your credit history is more crucial than your credit score. A higher credit score is important, but when it comes to the interest rate, your credit history plays a more significant role. Before granting car loan approval, lenders will assess your creditworthiness by examining your credit history. For instance, if you had previous auto loan payment failures or a vehicle repossession, your chances of getting approved for a car loan are lower. However, even with bad credit, some lenders can qualify you for a car loan, but with strict conditions like higher down payments and fees. These fees help to cover the risks the lender faces when extending you credit. It's vital to have equity or a downpayment to get leverage when buying a vehicle on credit. When it comes to the credit score range for a new vehicle, there is no one-size-fits-all score as several factors come into play. Nonetheless, a score above 680 is ideal since a lower score could mean higher interest rates. Your credit score affects the amount of interest you will pay on a loan. For instance, someone with a 720 or above credit score will pay an average of $5,500 in interest on a loan, while someone with a 580 credit score or above may pay up to $15,300 in interest on the same loan. A higher credit score means less interest paid, which benefits your overall credit score.

Ways to Improve Your Credit Score

Building a good credit score takes time and effort and needs patience. Without patience, one makes irrational decisions with their credit, worsening their issues. To improve your credit, consider these tips:

1. Open Revolving Credit Accounts

Revolving credit, such as credit cards, is a great option to increase your credit score, especially with limited credit. Start with a secured credit card like Open Sky or Credit Builder Card that focus on your ability to pay on time. Pay your balance on time, limit your card usage to small purchases like gas or groceries, and keep your balance at $5–10 each time you pay. This can help you build credit scores quickly.

2. Request Credit Limit Increase

Contact your credit card company online or by phone, fill out requested information like your current income, and get in front of their credit team to decide on whether your credit score will improve with a credit limit increase. Utilizing credit cards for purchases can hurt your score; therefore, it is recommended to increase your credit limit to lower your utilization percentage.

3. Keep Balances Low

Avoid high balances on credit cards as they can degrade your credit score. Only use credit cards for small purchases and keep your balance close to zero. Pay a portion of high balances from your paycheck every month, make a plan, and stop using credit cards when you cannot afford to pay off the balance.

Remember that these tips can make an impact, but building credit score takes patience and time.

Insights by Joe

We have all had times when our credit score was below average. However, taking ownership of your current credit situation and putting in the extra effort to improve it will yield remarkable results in a short time. Most people suffering from bad credit go through life with ongoing credit issues, and eventually resign themselves to the idea of having good credit again as unattainable. Achieving a great credit score is a product of hard work, with those who prioritize their credit and make an effort to control their spending habits emerging as winners. The starting point is to create a budget, work on and eliminate any bad spending habits which may have affected your credit score. If you require guidance and assistance on improving your credit score or carrying out a credit repair, please visit our website at www.asapcreditrepairusa.com. This article provides you with a better understanding of credit.