It may come as a surprise that there are actually 30 distinct levels of credit scores. Despite the abundance of information available online, finding the best credit score can be a difficult task. The sheer volume of information out there can be overwhelming and may even lead you astray. I'm Joe Mahlow, a financial literacy and credit repair expert with over fifteen years of experience. I aim to provide you with straightforward advice on various topics, including credit scores. Throughout my career, I've helped over twenty thousand clients improve their credit scores, and I'm confident I can do the same for you! Let's dive in and learn more.

Contents:

Different Types of Credit Scores Explained

Understanding Good Credit Score Ranges

Credit Score Needed to Buy a House: A Guide to Different Loan Types

Credit Score and Car Buying

Strategies to Increase Your Credit Score

Reflections from Joe - Improving Your Credit Score

Different Types of Credit Scores Explained

Credit scores play a crucial role in determining whether consumers qualify for credit and loans. Two scoring models are often used, FICO and Vantage. Each scoring model uses specific criteria in analyzing credit reports, which results in varying credit scores. Here's what you should know about the FICO and Vantage credit scores:

FICO Credit Score

The FICO model is the most commonly used credit scoring model. It is comprised of eight models, from FICO 2 to FICO 10. These different models can result in a difference in credit score depending on the credit report being pulled. For instance, a mortgage lender will likely use a FICO 5 credit report, while a credit card company will use a FICO 8 credit report. This is because each credit score weighs factors differently. The most significant factors to the lender hold more weight in resulting in a credit score, whereas less important factors are of less significance.

Vantage Credit Score

The Vantage score competes with the FICO score and was developed by the three major credit reporting agencies, Equifax, Experian, and TransUnion. Credit monitoring websites frequently use Vantage to provide free credit reports. Vantage is gaining popularity in some lending sectors, such as personal loans and auto lending. However, since FICO is still the most recognized scoring model, Vantage is not widely used for lending purposes. Vantage, instead, serves as a good general idea of a consumer's FICO score by providing a rough estimate of their overall credit scores.

Accuracy of the Vantage Score

The accuracy of the Vantage score depends on the context within the question. Since Vantage is not widely used for lending purposes, it will not be accurate in determining a consumer's actual lending score. FICO is the most recognized scoring model by lenders, so its accuracy can vary since Vantage's scoring criteria does not necessarily reflect the same factors as FICO. However, it is a good estimate for overall credit scores, which can be obtained for free from credit monitoring websites. The Vantage scoring model may eventually become more widely recognized in the lending industry within the next 5-10 years.

Understanding Good Credit Score Ranges

Having a good credit score is crucial when applying for loans or purchasing a home, as it determines the interest rates you can receive. Both FICO and Vantage models score in a range of 350 to 850, where 850 is the best and 350 is the worst score. Here are some essential score thresholds to keep in mind:

1. 620 or below

• It is considered bad credit, indicating either high-balance credit card accounts, negative credit history or no credit cards.
• To improve your credit score, make timely payments and have at least ten active revolving credit accounts open.
• Secured credit cards such as Credit Builder Card or OpenSky Credit Card are also recommended to help build credit.
• Once you reach a score of 620, you can start qualifying for an FHA home mortgage.

2. 640-680

• A score between 640-680 is considered fair for good credit, indicating that you have established credit.
• However, derogatory marks or accounts and high balances on credit cards you need to pay down may affect your score.
• New accounts may drop your scores temporarily, but scores will return over time.

3. 740+

• A score over 740 is considered "super-prime," giving you access to the best interest rates for most loans.
• If you have this score, congratulations, you are part of the 20% of the US population with this ranking, and it is important to maintain it by paying your accounts on time and keeping your revolving credit card accounts paid.

Credit Score Needed to Buy a House: A Guide to Different Loan Types

When it comes to buying a home, your credit score plays a vital role in determining the mortgage loan you can qualify for. The credit score requirements for most mortgage loans are governed by federal regulation and government backing, though they can vary across loan types. In general, there are three major types of mortgage loans: Conventional, FHA, and VA loans.

1. Conventional Loans

Conventional loans are the most sought-after loans and are often the ideal "savings" loan option, especially if you don't qualify for VA loans. Unlike FHA loans, these loans don't require private mortgage insurance (PMI), which can raise your monthly payments and increase your downpayment. With lower downpayment requirements and better interest rates, conventional loans usually have a typical credit score requirement of 640 and a debt-to-debt ratio that must not exceed 43%.

2. FHA Loan

FHA loans are for borrowers with lower credit scores, typically between 580 and 619. These loans come with PMI requirements that last for at least 11 years, which can add to your monthly mortgage payments. Despite this, many first-time buyers prefer FHA loans due to their lower downpayment requirements of 3.5% and higher debt-to-income limits of up to 50%.

3. VA Loan

VA loans are designed to provide support to active-duty military personnel and veterans. Although there's no official credit score requirement with the VA loan, the program has enshrined regulations targeting previous defaulted loans and any government-owed debts. For eligibility, you must have either 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 lost your spouse during active duty. The VA loan typically offers the best interest rates and requires no down payment, making it a great option for veterans and military personnel alike.

Credit Score and Car Buying

When it comes to purchasing a car, your credit history carries more weight than your credit score, though a higher score is still favorable for securing a lower interest rate. When you apply for a car loan, lenders assess your credit history to evaluate the risks of extending credit to you. For instance, if you have a history of late payments, repossession, or defaulting on a previous auto loan, lenders may be hesitant to approve your loan application. Some bad credit or special finance lenders may approve anyone for a car loan, but they will set specific criteria, such as a higher down payment and additional fees to lessen their risks. Dealerships may also charge fees to approve your loan and suggest a specific vehicle with a higher markup to cover their costs. Overall, having equity or a down payment can help with buying a car on credit.

Importance of Credit Score

While there is no fixed credit score that guarantees approval for a car loan as many factors are considered, having a credit score above 680 is considered ideal. A lower credit score may increase your interest rate and affect your overall credit score. For instance, someone with a 720 credit score or above may pay an average of $5,500 in interest on a loan, while someone with a credit score of 580 or above may pay up to $15,300 in interest on the same amount. Therefore, if you want to secure a lower interest rate, it's crucial to maintain a good credit history and score.

Strategies to Increase Your Credit Score

Improving your credit score is possible with some specific actions that you can take right away. Understand that it takes time to build an excellent credit score, and it's not an overnight process. Be patient to avoid mistakes that can harm your credit further. Here are the things that you can do right now:

1. Open 3-5 Revolving Credit Accounts

Revolving credit, particularly credit cards, can help you maximize your credit score. It's easier to build credit by obtaining revolving credit accounts instead of a massive loan, especially if you have limited credit or need to rebuild it. A secured credit card like Open Sky or Credit Builder Card that doesn't focus on your credit score can give you the best chance of approval. Revolving credit accounts make up 30-35% of your overall credit score and can help increase credit scores quickly. Make small purchases and pay your balance on time, keeping it between $5-$10.

2. Request Credit Limit Increase

Requesting a credit limit increase on your revolving credit card accounts can increase your overall credit limits and reduce your credit utilization percentage. Most people use their credit cards often, and having a credit card balance over 30% of your overall limit can hurt your credit score. You can call your credit card company or do it online through your portal to request a credit limit increase. Credit card companies usually want to see an excellent payment history of 7-15 months before they consider increasing your limit.

3. Pay Down Balances

Keeping your balance low and close to zero is significant for maintaining a good credit score. You can choose to use your credit cards only for small purchases and pay off your bill each month, leaving a $1-$5 balance on your credit cards. If you have high balances that you cannot pay, make a plan to pay it off with a portion of your paycheck each month and eventually stop using them. Limit your credit card usage since it plays a significant role in your overall credit score, and avoid carrying a balance due to high-interest rates.

Reflections from Joe - Improving Your Credit Score

Unfavorable credit scores are a common dilemma faced by many individuals today. However, by dedicating considerable time and effort to work on improving your credit rating, you can see significant improvements in no time. Many individuals are stuck in an unending cycle of terrible credit and believe that turning things around is a futile endeavor. But achieving a great credit score takes hard work, dedication, and a willingness to prioritize your credit while evaluating your spending habits. Begin by creating a viable budget and focusing on reversing bad spending patterns, which will ultimately be mirrored in your credit score. For additional insight and expert guidance on credit management, including credit repair assistance, visit my website at www.asapcreditrepairusa.com.