It may surprise you to learn that there are actually 30 different levels of credit scores. Many people are unaware of this fact and find themselves lost when searching for the best credit score on Google. Unfortunately, a lot of the information available online can be misleading or confusing, potentially leading you down a path that is hard to navigate. My name is Joe Mahlow, and I bring over fifteen years of experience in the financial literacy and credit repair space. My objective is to provide you with the honest advice you need on various topics, such as credit scores. Throughout my career, I have assisted more than twenty thousand clients in improving their credit scores, and I hope to arm you with the knowledge to do the same. So let's dive in!

Contents:

Types of Credit Scores and Scoring Models

Guide to Understanding Credit Scores

Credit Score Requirements for Different Mortgage Loans

Factors That Affect Car Loans

Ways to Increase Your Credit Score

Joe's Insight on Credit Repair

Types of Credit Scores and Scoring Models

Credit scores are essential in determining your creditworthiness and eligibility for credit products. There are two different credit scoring models, the FICO model, and the Vantage model, that are typically used to calculate your credit score. Understanding these models is critical in determining the differences in how your credit score is calculated.

FICO Credit Score

The FICO model is the most widely used credit scoring model based on eight different FICO models, from FICO 2 to FICO 10. As a result, you will receive varying credit scores depending on the credit report used by a lender. For instance, a mortgage lender will most likely pull your FICO 5 credit report when you apply for a home loan, while a credit card issuer will most likely pull your FICO 8 credit report. The reason behind this is that each credit report has a different weight as a result of specific factors critical to the lender, which will impact your credit score. Previous mortgage history will weigh heavily on your FICO 5 mortgage report if you have a great payment history or no history. For auto lenders, they typically pull FICO-2 reports, and your credit score will depend on your previous auto history.

Vantage Credit Score

The Vantage model, developed by the three major credit reporting agencies of Equifax, Experian, and TransUnion, is a relatively new scoring model when compared to the FICO model. Although FICO currently dominates the lending sector, the Vantage model is gaining popularity as a credit scoring model among some sectors, such as personal loans and auto lending. Credit monitoring websites all over the United States commonly use Vantage to provide you with a free credit report. However, since the Vantage score is not widely used for lending purposes, it may not be as accurate as your actual lending score, which is typically based on the FICO model that is recognized by most lenders.

Accuracy of Credit Scores

While Vantage scores are useful in giving you a general idea of your credit score, FICO scores are still the most crucial metric to lenders. Vantage scores may provide inaccurate estimations of credit scores since lenders widely use FICO models for lending purposes. However, nationwide lenders are likely to adopt the Vantage model in the next 5-10 years due to its effectiveness in providing accurate and reliable credit score data based on current standards. Ultimately, understanding the differences between these two scoring models is critical in determining your creditworthiness.

Guide to Understanding Credit Scores

Credit scores are determined by either the FICO or Vantage models, ranging between 350 to 850, with 350 being the worst and 850 being the best score. Knowing where you stand throughout your score-building journey is crucial for setting your goals to reach your maximum potential. Here are some vital score thresholds to help you understand:

620 or below

620 or below - Considered bad credit, this might be a result of adverse credit history, high-balance credit card accounts, or no credit cards at all. To improve scores, make timely payments and have ten active revolving credit accounts open. Secured credit cards like the Credit Builder Card or OpenSky Credit Card can also be helpful. When you reach the 620 credit score range, you can start qualifying for an FHA home mortgage.

640-680

640-680 - This range is considered fair for good credit and indicates established credit, but with possibly some derogatory marks or accounts, and some high credit card balances that need paying down. Newly opened accounts can cause temporary drops in scores, so it's important not to panic.

740+

740+ - Any score over 740 is considered super-prime and will offer the best interest rates for most loans. Being part of the 20% of the US population with this score is a significant achievement. To maintain good scores, always pay your accounts on time and keep your revolving credit card accounts paid. Keep up the good work!

Credit Score Requirements for Different Mortgage Loans

The credit score required to purchase a house depends on the type of mortgage loan you want to apply for. Mortgage loans are subject to federal regulations and guidelines, which may vary according to the loan type. The three most common mortgage loans are conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular mortgage loans since they offer the best savings outside of the VA loan. These loans do not require private mortgage insurance (PMI), and they offer lower down payment requirements and better interest rates than other loan types. The typical credit score requirement for this loan is 640, and the debt-to-debt ratio should be no higher than 43%.

FHA Loan

FHA mortgage loans are designed for borrowers with lower credit scores, usually between 580 and 619. However, different lenders offer different credit score limits, so borrowers need to shop around for the best financial option. Unlike conventional loans, FHA loans require PMI for at least 11 years, and they tend to have higher interest rates. The debt-to-income limit for these loans is up to 50%, allowing borrowers with lower incomes to purchase more homes. The down payment requirements for this loan are as low as 3.5%, making it an ideal option for individuals with minimal money to invest in a mortgage.

VA Loan

VA loans do not technically require a specific credit score, but they examine previous defaulted loans and government-related debts. Only individuals who have served in the United States military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or whose spouse was in the military and died during active duty qualify for this loan. VA loans usually offer the best interest rates and do not require a down payment, which is an excellent way to appreciate the effort and commitment of our veterans.

Factors That Affect Car Loans

When securing a car loan, your credit history is more important than your credit score. While a higher credit score is beneficial, interest rates are determined primarily by your credit history. Factors such as previous late payments, repossession, or other credit issues influence the lender's decision to extend credit. Certain lenders may approve buyers with a poor credit history, but additional criteria, such as a higher down payment and fees paid by the dealership, must be met. Moreover, having equity or a down payment on a loan can provide leverage when financing a vehicle. There is no set credit score that guarantees approval, but a score above 680 is ideal for securing favorable interest rates. For instance, a score of 720 can mean paying an average of $5,500 in loan interest, while a score of 580 could mean paying up to $15,300 in interest. Undoubtedly, it is wise to maintain a high credit score to minimize the interest rate paid on car loans.

Ways to Increase Your Credit Score:

Building good credit takes effort and time. While it may seem difficult, there are many small things you can do to help improve your credit score. Being patient is crucial, as impulsive decisions can worsen your credit situation. Here are three ways to boost your score:

1. Open 3-5 Revolving Credit Accounts (Credit Cards)

Revolving credit is an excellent option for improving your credit score quickly. This works best for those with limited credit history or those looking to rebuild their credit. Instead of obtaining a large loan, you have a better chance of approval by applying for a secured credit card such as Open Sky or Credit Builder Card. Revolving credit represents 30-35% of your credit score and requires timely payments. Only use this card for minor purchases and keep the balance between $5-$10.

2. Increase Your Credit Limits

Requesting a credit limit increase for your credit cards can expand your overall credit limit and decrease your credit utilization percentage. High credit utilization is one of the factors that can harm your credit score, so increasing your credit limits can help. Call your credit card company to request a “Credit Limit Increase,” and provide your current income information. Expect 7-15 months to need to pass before the increase takes effect.

3. Pay Down Your Balances

Keep your credit card balance low to improve your credit score. Try to keep your balance close to zero and only use your credit cards for small purchases. Ensure you have a balance of $1-$5 when paying the bill each month to keep the card active. If you have high balances and cannot pay them off, make a plan to allocate a portion of your paycheck each month to pay down the debt. Limit credit card usage to avoid additional balances or high interest rates.

Joe's Insight on Credit Repair

Bad credit is a common problem for many, but it's important to take it seriously and put in the effort to improve your credit standing. Don't fall into the cycle of thinking your credit will always be poor. You can improve your score quickly if you are willing to put in the work. Developing a good credit score takes time and effort, but those who make it a priority will succeed. Begin by creating a budget and identifying areas where you need to adjust your spending habits. This will have a direct impact on your credit score. You can learn more about credit by reading this article. If you need help improving your credit, or if you are in need of credit repair services, please contact my office at www.asapcreditrepairusa.com. Here's the summary:

1. Poor credit is common but can be improved quickly with effort.
2. It takes time and effort to develop a good credit score.
3. Prioritizing your finances should be a focus to help achieve a good credit standing.
4. Create a budget and identify bad spending habits to improve your credit.
5. Contact Joe's office at www.asapcreditrepairusa.com for credit repair services.