It may surprise you to learn that credit scores can come in 30 different variations. With so much conflicting information available online, it's no wonder that people often feel confused when searching for the best credit score. Unfortunately, some sources can be unreliable and lead you astray. I am Joe Mahlow, a financial literacy and credit repair professional with more than 15 years of experience. My aim is to provide you with direct and unbiased advice on a range of financial topics, including credit scores. Over the years, I've helped over 20,000 clients improve their credit scores, and today I hope to share some valuable insights with you. So without further ado, let's dive into the world of credit scores.

Contents:

Varieties of Credit Scores

Understanding Credit Scores

Picking the Right Credit Score for Purchasing a House

Determining Your Credit Score for Buying a Car

Tips for Improving Your Credit Score

Joe’s Tips on Improving Your Credit

Varieties of Credit Scores

There are two distinct credit scoring models that are of utmost importance to comprehend: the FICO model and the Vantage model. Understanding the dissimilarities in calculating your credit score is particularly crucial in regards to both models.

FICO Credit Score

The FICO credit scoring model is the most prevalent and extensively used model in the world, with eight FICO models ranging from FICO 2 to FICO 10. The credit score you receive is usually dependent on your credit report. Our explanation below delves more deeply into why there are so many different FICO models.

If you decide to make a purchase and apply for credit, lenders will pull your credit score via different FICO reports based upon the kind of lender you use. To illustrate, if you apply for a home, the mortgage lender will probably use your FICO 5 credit report. Conversely, if you apply for a credit card, they will use your FICO 8 credit report.

Why are there so many FICO scores?

To explain, every credit report has a different "weight." Factors that a lender deems critical to them will have a more significant influence in determining your credit score than those that are less important. For instance, if you look at a FICO 5 mortgage report, it might weigh significantly on previous mortgage history. Therefore, a positive payment history on a previous mortgage will weigh more on your credit score compared to negative payment history or no history. This is applicable to all FICO scoring models. Since credit card firms primarily use FICO 8 report, your previous credit card history will heavily impact this score. For automobile lenders, they typically pull Fico-2 reports, and your credit score will mostly depend on your previous auto history.

To observe a better visual representation of your different FICO scores, log on to www.myfico.com and sign up for an account.

Vantage Credit Score

Equifax, Experian, and TransUnion, the three major credit reporting agencies, designed the Vantage Score scoring model as a competitor to the FICO scoring model. The Vantage Score is a modern scoring model compared to the FICO model, which has been used since the seventies. Credit monitoring websites throughout the United States deliver a free copy of your credit reports, frequently by using the Vantage score scoring model. Although FICO currently dominates the lending sector, the Vantage Model is gaining popularity as a scoring model in some sectors, such as personal loans and auto lending.

Is the Vantage Score trustworthy?

The accuracy of the Vantage Score depends on the context of this question. Since the Vantage score is not widely used for lending purposes, it will not be accurate when it comes to your actual lending score. A credit score is only reliable if you are able to obtain a loan, and since FICO is the most recognized scoring model, Vantage's accuracy can vary. I advise using your vantage score to give you the best idea of roughly where your overall scores are, since it is hard to ever know your FICO score without paying for it or having a lender pull your credit report.

It is certain that lenders nationwide will widely use the Vantage scoring model in the next 5–10 years because of its ability to provide the best scoring models based on today's standards. I believe the FICO scoring model shouldn’t give users unclear representation of their credit scores, and is also outdated. Credit reporting agencies stand as the most significant data collection agencies outside social media companies, and if they have the data, they have the upper hand to provide the best scoring data.

Understanding Credit Scores

Credit scores range from 350 to 850 for both the FICO and Vantage models, with 350 being the lowest and 850 being the highest. Knowing your scores and setting goals to increase them is crucial, so here are some score thresholds to keep in mind:

620 or below:

This is a bad credit score, indicating adverse credit history, high-balance credit card accounts, or no credit cards. Improving credit scores entails making prompt payments and having ten open revolving credit accounts. Secured credit cards like Credit Builder Card or OpenSky Credit Card can help you build your credit score. When you reach the 620 credit score range, you can start qualifying for an FHA home mortgage.

640-680:

This range is considered fair for good credit. It implies that you have established credit but may also have some derogatory marks or accounts on your credit and high balances on credit cards to pay down. Newly opened accounts can also temporarily drop your scores. However, this is nothing to worry about, and your scores will bounce back.

740+:

Any credit score over 740 is technically "super-prime" and provides the best interest rates for most loans. Having a credit score over 740 means you are among the 20% of the US population with the highest credit scores. Keep paying your accounts on time, and ensure you keep your revolving credit accounts paid to stay in great shape. Congrats if you have a 740 or above!

Picking the Right Credit Score for Purchasing a House

The credit score necessary for buying a home varies based on the type of mortgage loan you intend to obtain. Regulations set by the government have created similar requirements for most mortgage loans, but some differences still apply. There are three primary types of mortgage loans: conventional, FHA, and VA loans.

Conventional Loans

Conventional loans are the most frequently used loans and are considered the best option for savings besides VA loans. They do not require private mortgage insurance (PMI), which could increase your down payment or monthly payment. PMI protects the lender in case of payment default. Conventional loans come with lower down payment requirements and better interest rates compared to other types of mortgages. Typically, conventional mortgage loans require a credit score of at least 640 and a debt-to-debt ratio not exceeding 43%.

FHA Loan

The FHA loan is ideal for those with lower credit scores, typically ranging between 580 and 619. Since loan programs can differ, make sure to consider financial options from various lenders within the credit score requirements. FHA loans require PMI for at least 11 years, which could be a financial burden, especially for those on a budget. Debt-to-income limits for this type of loan are generally higher, up to 50%, thus allowing people with lower incomes to finance more expensive housing. FHA loans allow lower down payments than conventional loans, usually as low as 3.5% of the home's value, but the interest rates may be higher.

VA loan

There is no specific credit score requirement for a VA loan. However, VA lenders review the vet's repayment history and government-owned debts while pre-qualifying the borrower. Qualifications for VA loans include serving in the United States Military for at least 181 days or serving 90 consecutive days during wartime, serving six years in the National Guard, or being a military service member's spouse who lost their life while on active duty. VA loans offer the lowest interest rates and typically do not require a down payment. They are an excellent option for veterans and dependents.

Determining Your Credit Score for Buying a Car

When it comes to buying a car, it's not just your credit score that matters, but also your credit history. While having a good credit score is important, lenders will also consider your previous and current credit histories to determine the level of risk involved in extending credit. This means that even if you have a high credit score, a history of late payments or repossession can make it more difficult to get approved for a loan.

However, even if you have bad credit, there are lenders who will qualify you for a car loan, but with added criteria such as higher down payments and fees to cover the risk of loan default. Dealerships may also select a vehicle for you with a higher markup to cover the fee. To give yourself the best chance of approval, having equity or a sizable down payment can help.

While there is no set credit score for loan approval, a credit score of over 680 is ideal. Anything below this may result in higher interest rates due to the increased risk to the lender. The amount of interest you pay can vary greatly depending on your credit score, with those having a score of 720 or higher typically paying the least amount of interest.

In summary, while a good credit score can be helpful in getting approved for a car loan, a solid credit history and other factors will also be considered. It's important to do your research and consider all options to get the best deal.

Tips for Improving Your Credit Score

Improving your credit score requires effort and patience, and it is not a quick fix. However, there are several steps you can take right now to help increase your credit score with minimal effort. Understanding that it takes time to build a good credit score is essential, and patience is the key to prevent irrational and bad credit decisions.

Below are some tips to help you improve your credit score:

1. Open 3-5 revolving credit accounts

   Revolving credit, such as credit cards, is an excellent way to help maximize your credit score. It is much easier to obtain compared to a large loan, especially if you have limited credit or are rebuilding your credit. A secured credit card such as Open Sky or Credit Builder Card would be a good place to start. It is essential to ensure that you pay the balance on time and limit the use of the card to small purchases like gas or groceries.

2. Raise your limits

   You can request a credit limit increase on your active revolving credit card accounts. This can help increase your overall credit limits and lower your credit utilization percentage, which can hurt your credit score. Each credit card company has different processes for increasing credit limits, so it's best to call the company and request a “Credit Limit Increase.” A credit card company usually wants to see a good payment history for at least 7-15 months before considering a credit limit increase.

3. Pay down your balances

   Keeping your balance low and close to zero is critical. Avoid running your credit card balances over 30% of overall limits. If your balances are high, make a plan to pay them down each month, starting with a percentage of your paycheck. Avoid using your credit cards, if possible, and remember to limit their usage because high-interest rates on credit cards can lead to most payments going towards interest and not principal.

Improving your credit score requires effort, patience, and better financial management, but it is entirely achievable if you follow these tips.

Joe’s Tips on Improving Your Credit

We've all experienced a less than perfect credit score. However, if you're serious about improving your financial situation, taking the time to work on your credit can lead to significant improvements. Many individuals with poor credit are stuck in a vicious cycle that seems impossible to break, but it is possible. Building good credit requires effort and dedication, but those who prioritize their credit and handle their finances prudently will see results. Start by creating a budget and correcting any negative spending habits, as this will positively impact your credit score. We aim to help you comprehend credit, and if you're seeking guidance or credit repair assistance, visit our website at www.asapcreditrepairusa.com. See below for key takeaways:

Key Takeaways:

• Don't hesitate to take action and make changes to your credit score
• Rely on financial education and personalized advice to improve credit quickly
• Improve current spending habits for a positive impact on credit score
• Seek out assistance from experienced credit repair specialists