It may be surprising to learn that there are actually 30 different levels of credit scores out there. Despite the fact that many people often seek out the best credit score when trying to understand their financial standing, the variety of responses they typically receive from search engines like Google can often be overwhelming and even misleading. As someone who has spent over fifteen years working in the field of financial literacy and credit repair, my name is Joe Mahlow and my main goal is to provide readers with helpful and transparent advice on a variety of topics, including credit scores. Having already assisted over twenty thousand clients in transforming their credit scores, I am confident that the information I provide here can be just as valuable to you! So, without further ado, let's dive right in.

Contents:

Different Types of Credit Scores Explained

Understanding Credit Scores and How to Improve Them

What Credit Score is Needed to Buy a House?

Determining the Credit Score Needed to Buy a Car

Tips for Improving Your Credit Score

Insights by Joe on Improving Credit Score

Different Types of Credit Scores Explained

Credit scores are a crucial element of anyone's financial standing, and it is essential to understand the different types of scoring models to make sense of them. The most widely used models are the FICO model and the Vantage model. Both models are important to understand, as they differ significantly in how they calculate your credit score.

FICO Credit Score

FICO is by far the most popular and widely used credit scoring model. It has eight different models, ranging from FICO 2 to FICO 10, depending on your credit report. Each lender you work with may pull a different FICO report, so you could get a different credit score depending on the type of lender you use. For example, if you are looking to buy a home, the mortgage lender would likely pull your FICO 5 credit report. In contrast, if you applied for a credit card, they would probably pull your FICO 8 credit report. Each FICO model reflects different weights on the factors that lenders deem most important.

Why so many FICO scores?

Each FICO score is different because each credit report has a different weight. The critical factors that a lender considers when determining your credit score vary depending on the type of loan or credit you are applying for. For instance, if you previously had a great payment history on a mortgage, it will carry more weight for a FICO 5 mortgage report, giving your credit score a boost. In contrast, FICO 8 reports will look at your previous credit card history, and FICO-2 reports will weigh heavily on your previous auto history.

To obtain a visual representation of your different FICO scores, you can sign up for an account on www.myfico.com.

Vantage Credit Score

Vantage is a newer scoring model, developed by Equifax, Experian, and TransUnion to compete with the FICO model. Credit monitoring websites often use Vantage to give you a free copy of your credit reports. Although FICO is the predominant model in the lending sector, Vantage's popularity is growing, particularly for personal loans and auto lending.

Is the Vantage Score accurate?

The Vantage Score is accurate, but its context determines the accuracy question. It is not widely used for lending purposes, which means that it may not provide the best representation of your actual lending score. Vantage scores can give you a general idea of your FICO score; however, FICO is recognized as the leading scoring model for lending. It is difficult to know your FICO score without paying for it or having a lender pull your credit report. Therefore, Vantage scores can provide insight into your overall credit score.

In the next 5-10 years, the Vantage scoring model may be widely used by lenders across the United States, as it provides the best scoring models based on current standards. The FICO scoring model is considered outdated and does not provide a clear representation of your credit score. The credit reporting agencies are the largest data collection agencies, and they have the data, so they have the upper hand in providing the best scoring data.

Understanding Credit Scores and How to Improve Them

Credit scores models such as FICO and Vantage offer scores ranging from 350 to 850. 850 is the best score, and 350 is the worst score one can have. When aiming for a high score, it's crucial to know your credit standing and essential score thresholds. Here are some score ranges you should take note of:

1. 620 or below

   If you're in this range, it means you have bad credit. It could be due to adverse credit history, high-balance credit card accounts, or no credit cards at all. The Credit Builder Card or OpenSky Credit Card can be helpful in building your credit. Once you attain a credit score of 620, you can qualify for an FHA home mortgage.

2. 640-680

   Scores in this range are considered fair for good credit. You may have established credit but may also have derogatory marks or some high balances on your credit accounts. Newly opened accounts can temporarily decrease your scores, but they'll return to normal soon.

3. 740+

   Any score over 740 is considered "super-prime" and reflects excellent credit. This score range will get you the best interest rates for various loans. Congratulations to those with over 740 credit scores, as only 20% of the US population have obtained this! Keep up the good work by paying your accounts on time and keeping your revolving credit card accounts paid.

What Credit Score is Needed to Buy a House?

The answer to this question largely depends on the type of mortgage loan you're aiming to secure. You'll need to navigate distinct requirements and guidelines based on the type of loan you choose. The three most common types are conventional loans (which don't require private mortgage insurance and only need a credit score of 640), FHA loans (which can be an option for those with lower credit scores, PMI may be necessary and down payment requirements can be as low as 3.5%), and VA loans (which have no credit score requirement, but eligibility is dependent on military service and have the best interest rates with no down payment required). It's important to shop around with different lenders to determine which program will best serve your financial needs.

Determining the Credit Score Needed to Buy a Car

When buying a car, your credit score takes a back seat to your credit history. Though having a high credit score is important, it’s not the driving factor that determines the interest rate of your car loan.

A lender will assess your credit history to determine the eligibility and risk of extending credit. They will look at your past and current auto loans and your payment track record to decide the terms of your loan. If you have credit issues, such as late payments or repossession, you might need to pay a higher down payment or additional fees to qualify for a loan. Dealerships bear the brunt of the risk, and they usually charge fees to offset the chance of you defaulting on the loan.

For a new vehicle, a credit score above 680 is ideal. The lower your score, the more interest you can expect to pay. A 720+ credit score pays around $5,500 in interest, while a score below 580 yields up to $15,300 in interest payments.

In conclusion, a good credit score is essential, but it’s just one of many factors to consider when buying a car on credit.

Tips for Improving Your Credit Score

Improving your credit score requires time and patience. There are several things you can do right now to help increase your credit score with minimal effort. The following are some tips to improve your credit score:

Open 3-5 revolving credit accounts (credit cards)

Revolving credit is one of the best options to help you maximize your credit scores. It's easier, especially for someone with limited or rebuilding credit, to build credit by obtaining a large loan. I recommend starting with a secured credit card that focuses more on your ability to pay the card on time. Revolving credit makes up 30-35% of your credit score and is the best option to help build credit scores quickly.

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. Most people utilize their credit cards a lot, and one of the factors that can hurt credit scores the most is if your credit card balances exceed 30% of your overall limits.

Pay down your balances

Keeping your balance low and close to zero is critical. If you currently have high balances and do not have the financial wherewithal to pay them off, make a game plan to take an "x" percentage of your paycheck each month to pay the credit card down and ultimately stop using them. Limit your credit card usage, and leave a balance of about $1-$5 on your credit cards each month.

1. Open 3-5 revolving credit accounts (credit cards): Revolving credit is one of the best options to help you maximize your credit scores. It's easier, especially for someone with limited or rebuilding credit, to build credit by obtaining a large loan. I recommend starting with a secured credit card that focuses more on your ability to pay the card on time. Revolving credit makes up 30-35% of your credit score and is the best option to help build credit scores quickly.
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. Most people utilize their credit cards a lot, and one of the factors that can hurt credit scores the most is if your credit card balances exceed 30% of your overall limits.
3. Pay down your balances: Keeping your balance low and close to zero is critical. If you currently have high balances and do not have the financial wherewithal to pay them off, make a game plan to take an "x" percentage of your paycheck each month to pay the credit card down and ultimately stop using them. Limit your credit card usage, and leave a balance of about $1-$5 on your credit cards each month.

Remember, building a good credit score takes time, and it is not something that will happen overnight. Patience is the most important thing you can have when building credit. With these tips, you can help increase your credit score over time.

Insights by Joe on Improving Credit Score

It is not uncommon to have a poor credit score at some point in your life. However, taking your current credit situation seriously and making a conscious effort to improve your credit can bring about significant changes in your credit score. It is disheartening to feel stuck in a cycle of constant credit issues, but developing an excellent credit score requires consistent work and dedication. By prioritizing your credit and focusing on your spending habits, you can improve your credit score effectively. Start by creating a budget and proactively addressing any poor spending habits, which will positively reflect on your credit score. For further guidance on credit score improvement or credit repair, feel free to reach out to our office at www.asapcreditrepairusa.com. Here's how you can better comprehend credit.

Points to consider:

1. Take your current credit situation seriously
2. Improving your credit can lead to significant changes
3. Having a poor credit score is a common struggle
4. Consistency and dedication is required to develop a great credit score
5. Prioritizing your credit and working on spending habits can effectively improve your credit score