It may come as a surprise to many, but credit scores are not a one-size-fits-all concept. In fact, there are 30 different levels of credit scores that exist. Searching for the best credit score on Google can yield a plethora of information, but it can also be overwhelming and misleading. As someone who has worked in the financial literacy and credit repair space for over 15 years, my name is Joe Mahlow, and my aim is to equip you with truthful advice on various topics like credit scores. Having helped over 20 thousand clients in transforming their credit scores, I hope to offer you enough information to do the same. So, let's dive into the details.

Contents:

Different Credit Scoring Models: Understanding FICO and Vantage

Credit Score Range and Thresholds

What Credit Score is Needed to Buy a House?

Determining Your Credit Score for Buying a Car

Tips for Improving Your Credit Score

Insights by Joe on Credit Improvement

Different Credit Scoring Models: Understanding FICO and Vantage

There are two primary credit scoring models you should know about: FICO and Vantage. It's important to understand the differences in how each calculates your credit score.

FICO Credit Score

FICO is by far the most popular and widely used credit scoring model and offers eight different models from FICO 2 to FICO 10. Depending on the credit report you receive, you may have a different credit score. Lenders pull different FICO reports depending on the credit you're applying for. For instance, a mortgage lender would most likely pull your FICO 5 credit report, while a credit card company would pull your FICO 8 credit report.

Why so many FICO Scores?

Each credit report has different weights; some factors are more critical than others, affecting your credit score. For example, a FICO 5 mortgage report weighs heavily on previous mortgage history. On the other hand, credit card companies use FICO 8 reports, and your previous credit card history will impact your score the most. Auto lenders pull Fico-2 reports, and again, your previous auto history will be more heavily weighted.

Vantage Credit Score

The three major credit reporting agencies (Equifax, Experian, and TransUnion) created the Vantage Score scoring model. Although newer compared to the FICO model, credit monitoring websites all over the United States frequently use Vantage to provide you a free copy of your credit reports.

Is the Vantage Score Accurate?

The Vantage score is accurate, but it depends on the context. As Vantage is not widely used for lending purposes, it will not be accurate when calculating your actual lending score. Since FICO is the most recognized model, Vantage's accuracy may vary. However, the Vantage scoring model can still provide a general idea of your FICO score. It can give you an idea of where your overall scores are, in case you're unsure about your FICO score.

Why Vantage Scoring is Gaining Popularity

I have no doubt that lenders nationwide will soon use the Vantage scoring model in the next 5–10 years because it provides the best scoring model based on today's standards. FICO is outdated and doesn’t give the user a clear representation of their credit scores. Credit reporting agencies have the data, making Vantage more accurate than the outdated FICO.

Credit score range and thresholds

Credit scores for both the FICO and Vantage models are in the range of 350 to 850, with 350 being the lowest and 850 being the highest possible scores. If you are determined to achieve the best credit scores, it's essential to know where you stand on the score range. Here are some vital score thresholds to guide you through this journey:

1. 620 or below

Having a credit score below 620 is considered bad credit. This can result from an adverse credit history, having high-balance credit card accounts, or not having any credit cards at all. To improve your credit score, make timely payments and have ten active revolving credit accounts. Consider using Credit Builder Card or OpenSky Credit Card, among other secured credit cards, to build your credit. When your credit score reaches the 620 range, you can qualify for an FHA home mortgage.

2. 640-680

In this credit score range, you have an average or fair credit score. It usually indicates that you've established credit, but you may have some derogatory marks, high account balances, or have recently opened accounts that make your scores drop temporarily. Pay down your high balances and wait for your scores to return to normal.

3. 740+

A credit score above 740 is considered "super-prime" and will give you the best interest rates for loans. Congratulations if your credit score is in this range, as you are part of the 20% of the US population with this score. To maintain your credit score, always pay your accounts on time and keep your revolving credit card accounts paid. You're in great shape!

What Credit Score is Needed to Buy a House?

The credit score required to buy a house depends on the type of mortgage loan you choose. The guidelines and regulations for mortgage loans might be similar or different based on the backing and regulations of federal government.

Below are the requirements and guidelines for three most common mortgage loan types:

1. Conventional Loans:

These are the most popular loans providing the best savings option after VA loans. Conventional loans do not require private mortgage insurance (PMI), which saves on downpayment or monthly payments. A typical credit score of 640 is needed for this loan type with a debt-to-debt ratio no higher than 43%.

2. FHA Loans:

These loans are designed for lower credit scores ranging between 580 and 619. FHA loans require borrowers to keep PMI for at least 11 years, which is important to consider if you are on a budget. The loan carries a higher debt-to-income limit of up to 50% and has a low downpayment requirement of 3.5% as compared to conventional loans.

3. VA Loans:

These loans are designed for veterans who have served the nation and their spouses. No specific credit score requirement exists for VA loans, but a previous default in payment may disqualify you. Best interest rates are available on VA loans, and they don't require any down payment.

Determining Your Credit Score for Buying a Car

When it comes to financing a car, credit history is more important than credit score. While a higher credit score can help, lenders also examine your credit history, including previous and current auto loans and any issues such as repossession or late payments. A poor credit history can make it difficult to get approved for a loan, even with subprime lenders. These lenders may require higher down payments and fees for extending credit to high-risk borrowers. Some dealerships may even select a specific vehicle for you based on their markup to cover the risk fee.

While there isn't a specific credit score requirement for approval, scores above 680 are considered ideal. Your credit score greatly affects the amount of interest you will pay, with higher scores resulting in lower interest rates. For example, a borrower with a 720 credit score can expect to pay $5,500 in interest on a loan, while someone with a 580 credit score may pay up to $15,300 in interest. Investing in a down payment or having equity can also increase your leverage when financing a vehicle.

Tips for Improving Your Credit Score

Improving your credit score requires patience and effort. It is a gradual process that cannot be achieved overnight. You need to be patient to make rational decisions and avoid making things worse for yourself.

Here are some steps that you can take to improve your credit score:

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

Revolving credit accounts, like credit cards, are an excellent option for maximizing your credit score. It can be challenging to build credit with a large loan; instead, start with secured credit cards like Open Sky or Credit Builder Card. This option increases your approval chances, focusing more on your ability to pay the card on time, bankruptcy history status and current income. It takes 2-4 months to impact your credit score, but remember to pay the balances on time and limit purchases to small ones like gas and simple groceries.

2. Raise your Limits:

Increase your credit limits by requesting credit limit increases for your credit cards. A higher limit can lower your credit utilization percentage. Cardholders whose credits are maxed out can request a credit limit increase, and CC companies require 7-15 months of excellent payment history before granting the request.

3. Pay Down Your Balances:

Paying your balance on time is critical, and you should limit your credit card usage to small purchases. Leaving a $1-$5 balance on your credit cards is suggested. If you can't pay off high credit balances, come up with a plan to pay off a fixed percentage of your paycheck each month. It's not advisable to pay off a credit card only to max it out again since your credit card usage patterns contribute substantially to your overall credit score. Also, high-interest rates will affect your payments, leading to more money going to interest rather than the principal amount.

Insights by Joe on Credit Improvement

We've all experienced the struggle of having poor credit, but don't lose hope just yet. Taking your credit situation seriously and dedicating time and effort towards self-improvement can result in significant improvements to your credit score in no time. Unfortunately, many people with bad credit resign themselves to this fate and believe that achieving good credit again is unattainable. The road to a high credit score demands diligent work and those who are willing to prioritize their credit management and spending behaviors will come out on top. Start by devising a budget and pinpointing areas where you may be making poor spending choices; this will reflect positively on your credit score. Lastly, if you need additional advice or have questions regarding credit repair, please reach out to my office via www.asapcreditrepairusa.com.

Key Takeaways:

- Being serious about your credit situation can lead to quick improvements

- The cycle of bad credit can be broken with effort and dedication to improved habits

- Creating a budget and addressing poor spending behaviors is a great way to start improving credit score.

- For more guidance on credit repair, visit www.asapcreditrepairusa.com.