It's hard to believe, but there are actually 30 different levels of credit scores! Shockingly, most people are unaware of this fact, leading them to scour the internet for the best score possible. However, the information available online can be incredibly confusing and, in some cases, downright deceptive. Hi there, my name is Joe Mahlow, and I've worked in financial literacy and credit repair for over 15 years. My aim is to offer you unfiltered advice on a wide range of topics, starting with credit scores. Thanks to my extensive experience, I've achieved incredible results for over 20,000 clients, and I'm confident that I can provide you with all the information you need to make a positive change. So without further ado, let's dive in!

Contents:

Different Kinds of Credit Scores Available

Understanding Credit Scores

The Ideal Credit Score Needed to Buy a Home

Ideal Credit Score for Car Buying

Tips for Boosting Your Credit Score

Advice from Joe: Fixing Your Credit

Different Kinds of Credit Scores Available

There are two primary credit scoring models that individuals must understand; the FICO model and the Vantage model. Understanding them is essential, especially concerning how they calculate a credit score.

FICO Credit Score

The FICO credit scoring model is the most commonly used credit scoring model with eight different models from FICO 2 to FICO 10. It may confuse you, but this explanation should help you understand why we have many different FICO credit scoring models.

Credit lenders use different FICO Credit scoring models depending on the type of credit applied. For instance, if you intend to apply for a credit card, most credit companies use FICO 8 Credit report. However, mortgage lenders, when approving home loans, are more likely to use Fico 5 credit report.

Why are There Many FICO Credit Scores?

Lenders use different FICO scores because each credit report has a different “weight,” where vital factors in a borrower's credit report weigh more on their credit score compared to less important factors. For example, FICO 5 mortgage report places more sensitivity on previous mortgage history as opposed to no history or negative history. The same applies to other FICO scoring models. With credit card companies primarily using the FICO 8 report, your previous credit card history impacts this score significantly. Auto lenders rely on the FICO-2 report, with your score heavily based on your previous auto history.

To obtain a better visual representation of these scores, access www.myfico.com and enroll to see all your different credit scores.

Vantage Credit Score

The Vantage Score scoring model was designed by major credit reporting agencies such as Equifax, Experian, and TransUnion to compete with the FICO scoring model. Though newer compared with the latter, Vantage is commonly used by credit monitoring websites in the United States to give you a free copy of your credit report. Personal loans and auto lending sectors also increasingly use Vantage over FICO.

How Accurate is the Vantage Score?

The accuracy of the Vantage score depends on the context within the question. Because the Vantage score is not yet widely used for lending purposes, it may not be accurate about your real lending score. As credit score accuracy is only as good as your ability to obtain a loan, FICO being the most recognized score model, the Vantage accuracy may vary. Nonetheless, I regard it as a general idea of my FICO score as it is hard to know the latter without a lender pulling your credit report or paying for it.

In conclusion, I believe that the Vantage score model will gain wider use across the United States within the next 5-10 years for its ability to provide the best scoring model based on current standards. The FICO score model is outdated and does not provide a clear representation of an individual's credit scores. Always remember that credit reporting agencies are significant data collection entities outside of social media companies. Thus they have the upper hand in providing the best scoring data, period.

Understanding Credit Scores

Credit scores are essential when it comes to obtaining loans, credit cards, mortgages, etc. Both the FICO and Vantage scoring models score range from 350 to 850. The highest score you can have is 850, and 350 is the lowest score possible. Here are some score thresholds to use as a guide to help you set your goals when building your scores:

1. 620 or below-

This is considered poor credit and means you may have adverse credit history with possibly high-balance credit card accounts or no credit cards. To improve your credit scores, make timely payments and have ten active revolving credit accounts open. Consider using Credit Builder Card or OpenSky Credit Card, as they can help you build your credit and qualify for an FHA home mortgage when you reach the 620 credit score range.

2. 640-680-

A score in this range indicates that you have established credit. However, you may have derogatory marks or accounts on your credit. You may also have some high credit card balances to pay down. If you have recently opened a new account, it may have caused a temporary drop in your scores; do not panic as your scores will return.

3. 740+-

An excellent credit score, which is considered "super-prime,” and it will provide you with the best interest rates for most loans. Congratulations if your score is above 740 because you are part of the 20% of the US population with this score. Keep up the good work by paying your accounts on time and keeping your revolving credit card accounts paid.

The Ideal Credit Score Needed to Buy a Home

The credit score requirements to buy a house vary depending on the mortgage loan you wish to qualify for. Regulations and guidelines for most mortgage loans tend to be similar due to government backing, although some differences exist. The three most common types of mortgage loans include conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are an excellent savings option outside of VA loans. They are popular and do not require private mortgage insurance (PMI), which can be an added cost to your monthly payment or increase your down payment. PMI serves as protection for the lender in case you default on your loan. A credit score requirement of at least 640 and a debt-to-debt ratio no higher than 43% are typical of conventional loans. They usually require lower down payments and better interest rates than other mortgage loans.

FHA Loan

FHA mortgage loans are more suited to lower credit scores of around 580 to 619. You should shop around for different lenders that provide favorable financial plans if you fall within the range of acceptable credit scores. FHA loans require you to keep PMI for at least 11 years, which will increase your mortgage's monthly cost. It usually has a higher debt-to-income limit, up to 50%, and is ideal for low-income individuals who want to purchase more homes than with a conventional loan. However, these loans typically have a higher interest rate. Lastly, you can get into a mortgage with a low down payment of 3.5% of the purchase price.

VA Loan

VA loans require no particular credit score, but they assess previous defaulted loans and the presence of any past-due government-related debt 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 lost their life while in active duty. The VA loan usually has the best interest rates available, and most times, there's no down payment required. It's a loan option that's best for veterans, and it's a good way to show gratitude for their service.

Ideal Credit Score for Car Buying

When it comes to buying a car, your credit history is more important than your credit score. While a good credit score is helpful, it has less impact on your interest rate. When you apply for a car loan, lenders check your credit history to determine the risk. Late payments, repossession, and defaults can affect your loan approval. Special finance lenders may offer loans even to those with poor credit, but they have strict criteria that you must meet.

To buy a vehicle on credit, having equity or a down payment gives you an advantage. While there is no exact credit score, a credit score over 680 is ideal to get a lower interest rate. A higher credit score means you are less risky to lend to, so you pay less interest. For example, someone with a 720 credit score pays an average of $5,500 in interest, while someone with a 580 credit score pays $15,300 on average.

So, it's clear that a higher credit score means paying less interest on a car loan, which impacts your overall credit score.

Tips for Boosting Your Credit Score

Achieving a great credit score requires patience and consistent efforts. Building up your creditworthiness doesn't happen overnight, so it's essential to make smart and informed decisions with your credit. Here are some steps you can take right now to start improving your credit:

1. Open 3-5 revolving credit accounts:

Revolving credit, such as credit cards, is a great way to increase your credit scores quickly. For those with limited credit or rebuilding their credit, obtaining a large loan can be challenging. Opting for a secured credit card, like Open Sky or Credit Builder Card, that focuses on your ability to pay on time, can be a good start. Bear in mind that revolving credit makes up 30-35% of your overall score, so make sure to keep your balance low (around $5-10) and pay on time.

2. Raise Your Limits:

Requesting a credit limit increase from your active revolving credit card companies can help increase your overall credit limits and lower your credit utilization percentage. You can ask your credit card company through their online portal or give them a call. Be sure to check their terms and conditions and make sure you have 7-15 months of excellent payment history on record before requesting a limit increase.

3. Pay Down Balances:

Keeping your credit card balance low is crucial to a great credit score. It's best to limit the use of your credit card for small purchases and leave a balance between $1-5 on your credit cards when paying your bills. If you currently have high balances, formulate a debt payment plan to regularly reduce them as much as possible. Remember, your credit card spending habits play a significant role in your overall credit score.

By following these tips, you can make significant progress in improving your credit score over time.

Advice from Joe: Fixing Your Credit

As many of us have experienced, having poor credit can present its challenges. However, if you are serious about improving your credit and dedicate the necessary time and effort, you will see significant improvements quickly. Unfortunately, many individuals with bad credit feel trapped in a cycle that seems impossible to break. Building a great credit score takes effort, but it is achievable for those that make it a priority. Start by assessing your spending habits, creating a budget, and working to eliminate any bad spending habits. This will have a direct impact on your credit score. For more insight into credit, refer to this article. If you need additional guidance on improving your credit score or credit repair, don't hesitate to contact my office at www.asapcreditrepairusa.com.

To summarize:

1. Acknowledge your current credit situation and take it seriously.
2. Dedicate time and effort to improving your credit.
3. Avoid getting trapped in a cycle of bad credit.
4. Prioritize your credit for long-term success.
5. Start by assessing your spending habits and creating a budget.
6. Refer to this article for additional insight into credit.
7. Reach out to www.asapcreditrepairusa.com for help with improving your credit score or credit repair.