It's a little-known fact that there are actually 30 different levels of credit scores. As you may have discovered in your search for the best credit score, Google can provide a lot of conflicting information on the topic. Unfortunately, some of this information can be confusing or even misleading, leading you astray. My name is Joe Mahlow, and I have spent more than fifteen years working in the financial literacy and credit repair field. My mission is to provide you with straightforward advice on various topics, including credit scores. Having helped over twenty-thousand clients improve their credit scores, I want to share my knowledge with you and empower you to do the same. Let's dive right into it.

Contents:

Different Categories of Credit Scores

Understanding Credit Scores: A Guide to Score Ranges and Thresholds

What is a qualifying credit score for home buying?

What is a suitable credit score for purchasing a car?

Tips for Improving Your Credit Score

Joe’s Insights on Credit Repair

Different Categories of Credit Scores

There are two main scoring models for credit scores, FICO and Vantage. Both are crucial to know considering how differently they calculate your score.

FICO Credit Score

FICO is the most popular credit scoring model, with eight different models ranging from FICO 2 to FICO 10. FICO models differ according to your credit report, which may lead to varying credit scores. Different lenders pull different FICO models, depending on your type of credit. For example, a mortgage lender pulls a FICO 5 report, while a credit card lender pulls a FICO 8 report. FICO models have different “weights” because the factors that lenders consider most important impact a credit score more heavily than less essential ones. For instance, a FICO 5 report for a mortgage weighs heavily on the previous mortgage payment history, which positively affects the credit score. Hence, each FICO model focuses on specific lenders and their needs.

Vantage Credit Score

The Vantage Score is a newer model created by Equifax, Experian, and TransUnion to rival the FICO model. Many credit monitoring websites use the Vantage Score to offer you a free copy of your credit report. While FICO dominates the lending sector, the Vantage Score model is gaining popularity in some sectors like personal loans and auto lending.

Is the Vantage Score Accurate?

The Vantage Score is generally accurate in providing a general idea of your FICO score. However, its accuracy for lending purposes is limited since lenders recognize the FICO model more widely. A credit score's accuracy depends on its ability to help you obtain a loan, and because FICO is the most popular and recognized scoring model, your Vantage Score can deviate. Despite this, the Vantage Score still presents a reasonable estimation of your credit score, which is helpful since obtaining your FICO score requires payment or a lender pulling your credit report. It is equally essential to note that the Vantage model is gaining popularity, and more lenders are starting to use it. Thus, credit reporting agencies, having access to significant data, are the most reliable data providers for scoring models and should be trusted.

To get your different FICO scores, go to www.myfico.com and sign up for an account.

Understanding Credit Scores: A Guide to Score Ranges and Thresholds

Credit scores are essential when it comes to your financial well-being, and it's crucial to know where you stand throughout your journey when building your scores. The FICO and Vantage models range from 350 to 850, with 850 being the best score and 350 being the worst. Here are some vital score thresholds you should be aware of:

1. 620 or below:

This is considered bad credit and indicates adverse credit history, high-balance credit card accounts, or no credit cards. The best way to improve scores is to make timely payments and have ten active revolving credit accounts open, and secured credit cards like the Credit Builder Card or OpenSky Credit Card can help. At this point, you begin qualifying for an FHA mortgage.

2. 640-680:

Scores in this range indicate fair to good credit, and it's usually a result of established credit history with high balances on credit cards or derogatory marks. Newly opened accounts temporarily drop scores, but it's nothing to panic about.

3. 740+:

Any credit score above 740 is considered "super-prime" and awards the best interest rates for most loans. Being among the 20% of the US population with such a score is commendable, so keep up the good work by paying accounts on time and maintaining low revolving credit card balances.

What is a qualifying credit score for home buying?

Different types of mortgage loans have different qualifying credit score requirements. While federal regulations and government backing ensure some uniformity, there are exceptions. The three most popular mortgage loan types are conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular loans, the best “savings” loan option apart from the VA loan. You do not need to maintain private mortgage insurance (PMI), an added cost that can increase downpayment or monthly payments. PMI protects the lender if you stop making payments on your loan. Conventional loans usually have lower downpayment requirements and better interest rates than other mortgage loans. Conventional mortgage loans have a typical credit score requirement of 640 and 43% as the maximum debt-to-debt ratio.

FHA Loan

The FHA mortgage loan is for lower credit scores, between 580 and 619. All loan programs are different, so explore different lenders who offer the best financial option for you. Note that FHA loans require you to keep PMI for at least 11 years, an added cost to your mortgage. These loans usually have a higher debt-to-income ratio of up to 50%, allowing you to buy more homes than with a conventional loan if you have a lower income. Lastly, the downpayment requirements on an FHA loan are as low as 3.5% of the purchase, but interest rates may be higher.

VA Loan

There are no credit score requirements with the VA Loan, but they will check for any previous defaulted loans and government-owed past-due debts while pre-qualifying you. 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 have a spouse who was in the military and lost their lives during active duty. The VA loan typically has the best interest rates available, and they usually do not require a down payment. This loan is perfect for our veterans, and we highly recommend it.

What is a suitable credit score for purchasing a car?

When it comes to purchasing a car, your credit history is more important than your credit score. While a higher credit score is beneficial, it is not the sole determining factor of the interest rate you will qualify for. Lenders evaluate your previous and present credit histories to assess the risk of extending credit.

For instance, if you have a history of late payments or a repossession, you may find it challenging to secure a loan. However, even with poor credit, there are lenders who will approve your application with certain conditions, such as a higher down payment and additional fees. Dealerships will also charge a fee to lessen their risk of you defaulting on the loan, which will reflect on the car's cost.

To have more purchasing power, it is recommended to have some equity or a downpayment. Although there is no fixed credit score to determine approval, a score of 680 or higher is ideal for a new car loan. Any score below this can increase your interest rate and overall cost of the loan.

To illustrate, a person with a credit score of 720 or higher will pay an average of $5,500 in interest for a loan, whereas a person with a credit score of 580 or above will pay an average of $15,300 in interest on the same loan. Thus, your credit score has a direct impact on the interest you will pay.

Tips for Improving Your Credit Score:

Building a good credit score takes time and patience. With the right steps, you can help increase your credit score. Reaching a good credit score is important; because with it, you will have better chances of getting approved for loans, renting an apartment and even getting a job. Here are some things you can do right now to improve your credit:

1. Open 3-5 Revolving Credit Accounts:

Opening revolving credit accounts such as credit cards is a great way to build up your credit. It is easier than obtaining a large loan, especially for new credit or rebuilding credit. You can start with a secured credit card such as Open Sky or Credit Builder Card. Revolving credit makes up 30-35% of your overall credit score and can help build your score quickly. Make sure to pay your balance on time and keep it low. Limit the use of the card only for small purchases like gas or groceries.

2. Raise Your Limits:

Request a credit limit increase for your credit cards as it can help increase your overall credit limits and lower your credit utilization percentage. Most importantly, make sure to have a good history of credit card payments before requesting a credit limit increase.

3. Pay Down Your Balances:

Keep your balance low and close to zero. Use your cards only for small purchases and try to leave a $1-5 balance on your credit card when paying the bill each month. Limit your credit card usage, especially if you cannot pay it off in full. Make a game plan to pay your credit card down each month.

Improving your credit score is not an overnight process. It takes time and effort, but following the right steps can help you reach your goal.

Joe’s Insights on Credit Repair

Many of us have experienced poor credit at some point in our lives. However, improving your credit score is possible if you take immediate steps to address your current situation. It's easy for people with bad credit to adopt a defeatist mindset and believe that it's impossible to improve. But if you concentrate on changing yourself and your spending habits, you'll notice significant progress in boosting your credit score. The process of building good credit requires a lot of hard work and determination. Somebody who prioritizes their financial circumstances and strives to improve their spending habits can ultimately succeed. It's advisable to start by creating a budget and working on fixing any poor spending habits, as this will have a positive impact on your credit score. If you find yourself in need of further guidance or credit repair assistance, please don't hesitate to reach out to my office at www.asapcreditrepairusa.com.