It's quite surprising to know that there are as many as thirty different levels of credit scores. However, it's quite common that people searching for the best credit score are bombarded with varying answers that even sometimes lead them to a dark path. The information overload can be confusing and misleading at the same time. Hi, I'm Joe Mahlow and I've been a part of the financial literacy and credit repair corridor for more than a decade and a half. My focus is to provide unfiltered guidance on numerous topics, one of them being credit scores. Having transformed the credit scores of over twenty thousand clients, I aspire to impart enough information that can offer you the same benefits. So, are you ready? Let's jump into it.

Contents:

Different Types of Credit Scores and How They are Calculated

Determining a Credit Score

What Credit Score Do You Need to Buy a House?

Credit History is More Important than Credit Score When Buying a Car

Tips on Increasing Your Credit Score

Joe's Insights on Improving Your Credit Score

Different Types of Credit Scores and How They are Calculated

Credit scores are essential when it comes to borrowing money. However, there are different types of credit scores, such as the FICO and Vantage models, which can be a bit confusing. In this article, we will break down the different types of credit scores and how they are calculated.

1. FICO Credit Score

The FICO model is the most widely used credit scoring model, with different versions ranging from FICO 2 to FICO 10. Depending on the lender you use, a different FICO report will be pulled when you apply for credit, resulting in different scores. Mortgage lenders usually pull the FICO 5 report, while credit card companies tend to use the FICO 8 report. This is because each credit report has a different "weight," prioritizing critical factors for lenders, which reflect more on the score than less important factors.

2. Vantage Credit Score

The Vantage Score model is relatively new and was developed by the three major credit reporting agencies, Equifax, Experian, and TransUnion. Although not widely used for lending purposes, it's gaining popularity in some sectors, such as personal loans and auto lending. Credit monitoring websites often use Vantage to provide free credit reports.

Is the Vantage Score accurate?

The Vantage Score is accurate, but its accuracy may vary when it comes to your actual lending score. Since FICO is still the most recognized scoring model, Vantage's accuracy can depend on the context. However, Vantage can still provide a "general idea" of your FICO score if you're unsure of your credit scores. In the future, the Vantage score may become more widespread since credit reporting agencies collect vast amounts of data and can provide the best scoring data.

If you want a better visual representation of your FICO scores, you can visit www.myfico.com and sign up for an account.

Determining a Credit Score

Credit scores range from 350 to 850 for both FICO and Vantage models, with 350 representing the worst possible score and 850 being the ideal score. Maximum scores are perfect, while minimum scores are bad. Establishing high goals necessitates an understanding of your ranking as you progress toward achieving those goals. Here are some crucial score thresholds to keep in mind.

1.620 or below

Credit scores that approach or fall below 620 are regarded as terrible. If you've reached this threshold, you almost certainly have a poor credit history, high balances on your credit cards, or no credit cards at all. You can boost your scores by making on-time payments and keeping ten revolving credit accounts open. The Credit Builder Card or OpenSky Credit Card, as secured credit cards, are suggested for boosting your credit score. You'll be eligible for an FHA mortgage once you reach the 620 credit score range.

2.640-680

Scores ranging from 640 to 680 are considered adequate for good credit. If your credit score falls within this range, it typically means that you've established credit. But you might have some derogatory marks or accounts on your credit, as well as high credit card balances that you'll need to pay down. Whenever you open a new account, your score may temporarily decrease. Don't worry if this happens; your scores will recover.

3.740+

Credit scores over 740 are considered "super-prime" and provide the best interest rates for the majority of loans. If you have a credit score of over 740, congratulations! You are part of the 20% of the US population with this score. To maintain your high credit score, always make timely payments and keep your revolving credit card accounts up to date. Good job!

What Credit Score Do You Need to Buy a House?

The credit score required to buy a house depends on the type of mortgage loan you plan to apply for. Common types of mortgage loans include conventional loans, FHA loans, and VA loans, all of which have varying requirements and guidelines due to federal regulation and government backing.

1. Conventional Loans:

Conventional loans are the most popular and cost-effective loan option outside of VA loans. They don't require you to maintain private mortgage insurance (PMI), which can increase your down payment or monthly payments. Conventional loans usually have less down payment requirements and more favorable interest rates than other mortgage loans. However, their typical credit score requirement is 640, and the debt-to-debt ratio should not be higher than 43%.

2. FHA Loans:

FHA loans cater to lower credit scores - typically between 580 and 619. However, loan programs vary, so it's best to go from lender to lender and compare rates and offers. They require you to keep PMI for at least 11 years, which can increase your mortgage costs and influence your budget factors. The loan has a higher debt-to-income limit of up to 50%, making it easier to buy more homes than with a conventional loan. While down payment requirements may be as low as 3.5%, the interest rates are, more often than not, higher.

3. VA Loans:

The VA loan does not have a defined credit score requirement, but lenders look for previous defaulted loans and government-owned debts when pre-qualifying you. You must have served in the US military for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or your spouse was in the military and died during active duty. The VA loan typically has the most favorable interest rates and does not require a down payment. It's deemed as the ideal loan for honoring and giving back to our veterans.

Credit History is More Important than Credit Score When Buying a Car

When considering buying a car, most people are concerned about what they qualify for. Although a high credit score is important, this only plays a minor role in determining the interest rate for which you qualify. Creditors first examine your previous and current credit histories to evaluate the risk involved in extending credit. Therefore, previous tardiness on auto loans or a vehicle repossession can make it more challenging for one to be approved for a loan. However, those with inadequate credit ratings can still obtain bad credit or special finance loans. Still, they have to meet specific criteria such as a high down payment, and the dealership usually charges additional fees to support the extension of the loan. The dealership will pay this fee to reduce the risk of loan defaulting and approve borrowers for the loan. Therefore, it is essential to have equity or a downpayment when buying a car on credit.

Credit Score Requirements for Buying a New Vehicle

It is difficult to specify the exact credit score required for approval, given the several factors I have mentioned above. But a score above 680 is ideal for new car loans. However, the interest rate increases with reduced credit scores since the risk posed to the lender is higher. The interest paid on the loan depends on the credit score, with higher scores attracting less interest. For example, a creditor with a 720 credit score will pay an average of $5,500 in interest on a loan, while another with a score of 580 or above will pay an average of $15,300 in interest on the same loan. Therefore, maintaining a high credit score is of utmost importance to avoid high interests charged on loans.

Tips on Increasing Your Credit Score

Improving your credit score takes time and effort, so it's important to be patient and avoid impulsive spending decisions. Here are some steps you can take now to help raise your credit score:

1. Open 3-5 Revolving Credit Accounts

Revolving credit, like credit cards, can help you build your credit score. If you have limited credit or need to rebuild, start with a secured credit card like Open Sky or Credit Builder Card. Revolving credit makes up about 30-35% of your overall credit score, so paying balances on time and keeping them low (around $5-$10) can help boost your score. Use the card for small purchases like gas or groceries.

2. Request a Credit Limit Increase

Increasing your credit limit can lower your credit utilization percentage, one of the factors that can hurt your score the most. Contact your credit card company and request a “Credit Limit Increase.” Approval may depend on your payment history and current income.

3. Pay Down Your Balances

Keeping a low balance is crucial for maintaining a good credit score. Try to pay off your credit cards each month, leaving a small balance ($1-$5). If you have high balances, create a game plan to pay off credit cards over time to avoid running balances back up. Limiting credit card usage can help prevent high interest rates and ensure most of your payments go toward the principal.

Joe's Insights on Improving Your Credit Score

It's common to have less than ideal credit at some point in our lives. However, taking your credit situation seriously and dedicating time and effort into improving it can result in significant changes in your score in a short time. Many people with bad credit fall into the trap of believing that they are stuck with credit issues for life, but this is not the case. Developing a great credit score requires hard work, prioritizing credit, and focusing on spending habits. Starting with setting up a budget and fixing bad spending habits is a direct reflection of improving credit scores. This article aims to enhance your understanding of credit. If you need guidance or assistance to repair your credit, reach out to my office at www.asapcreditrepairusa.com. Check out these tips:

- Take your credit situation seriously and put in the time and effort needed to improve it.

- Don't fall into the cycle of bad credit, and it's never too late to start.

- Prioritize your credit and work on your spending habits to see the results reflected in your scores.