Were you aware that there are 30 levels of credit scores available? Many people are unaware of this fact, and as a result, when they search online for the best credit score, they frequently get different responses from search engines. Unfortunately, much of this information can be problematic and even lead to confusion. My name is Mary Jones, and I have been active in the financial education and credit repair sector for more than a decade. My goal is to provide you with honest advice on different subjects, such as credit scores. I have been successful in helping over twenty thousand clients improve their credit scores, and I am confident I can provide you with the necessary knowledge to do the same. So, let's dive into the topic.

Credit Score Models: FICO vs. Vantage

Two models of credit scoring comprise the FICO and Vantage models, and understanding their differences in computing credit scores is crucial. The FICO model is the more commonly used model and has eight different types, from FICO 2 to FICO 10, that lenders usually pull according to the type of loan you are applying for. For instance, a mortgage lender will most likely evaluate your Fico 5 credit report, while credit card companies primarily use FICO 8 for card applications. Each type of FICO model puts varying significance on different factors found in credit reports, resulting in different credit scores. In contrast, the Vantage Score, developed by Equifax, Experian, and TransUnion to compete with FICO, is a newer model that credit monitoring websites in the USA use to give out free credit reports.

Here are some more details about each of the two models:

FICO Credit Score

• FICO is the most widely used credit scoring model, with the heaviest weight on previous mortgage payments history for mortgage lenders and previous credit card usage for credit card lenders.
• FICO has eight types of credit scoring models that put varying significance on different factors in credit reports.
• One FICO model will be pulled over another depending on the type of loan or credit card you are applying for.

Vantage Credit Score

• Equifax, Experian, and TransUnion jointly developed this scoring model to compete with FICO.
• Vantage Score is a newer model compared to FICO, which has been utilized since the seventies.
• The Vantage score is not widely used for lending purposes; however, it is accurate to some extent and can serve as a general guide for your credit score.
• The Vantage Score model is gaining popularity for some sectors, such as personal loans and auto lending, but FICO presently dominates the lending industry.

In conclusion, credit reporting agencies are major data collection centers that provide the best scoring data from credit reports. In the next 5-10 years, Vantage may become more prevalent since it is a new ranking model based on current credit-scoring standards and might eventually replace FICO.

Understanding a Good Credit Score

A person's credit score can be assessed using FICO or Vantage models, ranging from 350 to 850. The higher the score, the better one's credit history. To strive for the best scores, it's crucial to monitor your progress. Below are some important credit score thresholds to consider:

1. 620 or below

This credit score is considered bad, which means there may be high-balance credit card accounts, adverse credit history, or no credit cards at all. To improve your credit scores, it is recommended to pay bills on time, have active revolving credit accounts, and acquire a secured credit card.

2. 640-680

This score range is considered fair, indicating established credit history but possibly with derogatory marks or high balances on credit cards. If your scores have decreased due to some newly opened accounts, it is only a temporary decrease and should not be a cause for panic.

3. 740+

A score exceeding 740 is considered "super-prime" and represents the top 20% of the US population. Maintaining a high score requires paying accounts on time and keeping revolving credit card accounts paid. Congratulations if you have achieved this score as you'll have access to the best interest rates for most loans.

What Credit Score Do You Need to Buy a House: A Guide to Different Loans

When it comes to buying a home, your credit score plays a critical role in determining the type of mortgage loan you qualify for. There are different types of mortgage loans, including conventional, FHA, and VA loans, each with varying requirements and guidelines. Below we discuss the credit score requirements and other essential considerations for each of these loan types:

1. Conventional Loans

Conventional loans are popular among home buyers due to their lower downpayment requirements and better interest rates. With a typical credit score requirement of 640 and a debt-to-income ratio no higher than 43%, conventional loans do not require you to maintain private mortgage insurance.

2. FHA Loans

FHA loans are ideal for homebuyers with lower credit scores, typically between 580 and 619. This loan type has a higher debt-to-income limit of up to 50% and downpayment requirements as low as 3.5% of the purchase price. However, you must keep private mortgage insurance payments for at least 11 years, which can increase your monthly payments.

3. VA Loans

VA loans do not have a credit score requirement, but they will check your previous defaulted loans and government-owed past-due debts. You must have served in the U.S. military for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or have a spouse who lost their life during active duty. VA loans typically have the best interest rates and do not require a down payment. They are designed to support and give back to our veterans who have served our country.

Determining the Credit Score Range for Buying a Car

When it comes to buying a car, the key factor in determining loan eligibility is not only your credit score but also your credit history. While a better credit score is an advantage, it does not determine the interest rate you qualify for. Credit issues can trigger scrutiny of both current and past credit histories to assess credit risk when applying for a car loan. Thus, a history of late vehicle loan payments or repossession adversely affects one's eligibility to get approved for a loan compared to someone who has been making timely payments. However, it is still possible to obtain a car loan even with poor credit through some special finance lenders who set specific criteria for approval, e.g., the need for a higher down payment and dealership fees to cover risks associated with extending credit. Additionally, dealerships will need to pay specific fees to cover risks for loan defaulters and offer car loans to even individuals with bad credit. A lower interest rate is achievable by having a well-established credit score and starting off with a down payment or equity.

Credit Score Ranges for Car Loans

There is no specific credit score range to either signify approval or disapprove, as several factors such as already discussed, apply. However, the ideal credit score range for car loans is above 680. A score below 680 increases the interest rate a lender charges due to the risk posed by the borrower. The current data interpretation reveals that a higher credit score equals lower interest rates and vice versa. For instance, a person with a credit score of 720+ will pay about $5,500 in loan interest, while another with 580+ credit score will pay about $13,900-$15,300 in the same category of loan. These variations demonstrate how higher credit scores significantly affect overall credit score and interest rates.

Ways to Increase Your Credit Score

Improving your credit score takes time and patience. You can make efforts to increase your score now by following these tips:

1. Open 3-5 revolving credit accounts (credit cards)

   • Revolving credit will improve your credit scores quicker and is easier to manage than obtaining a large loan.
   • Starting with a secured credit card like Open Sky or Credit Builder Card is recommended.
   • Revolving credit constitutes 30-35% of your credit score.

2. Request a credit limit increase

   • Having a higher credit limit can lower your credit utilization percentage and improve your credit score.
   • Contact your credit card company and request a "Credit Limit Increase."
   • A credit card company may want to see a good payment history for 7-15 months before granting a limit increase.

3. Pay down your balances

   • Keeping your balance low and close to zero is crucial for improving your credit score.
   • Use your credit cards for small purchases and leave a $1-5 balance each month.
   • If you have high balances, create a plan to pay a consistent percentage of your paycheck towards paying it off.
   • Limit your credit card usage and remember that most payments go towards interest, not principal.

Advice from Joe

The majority of us have experienced the struggle of having a less than satisfactory credit score. It is important that you acknowledge your current credit situation and take active steps towards improving it, as this can lead to significant improvements in your score in a relatively short period of time. Unfortunately, many individuals with poor credit become trapped in a perpetual cycle of financial difficulties and believe that it is impossible to achieve good credit. However, working hard to develop a strong credit score is possible for anyone who is willing to prioritize this aspect of their financial wellbeing and work on their spending habits. Start by establishing a budget and focusing on addressing any negative spending behaviors, as improving these habits will have a positive influence on your credit rating. This article provides valuable insights into the topic of credit. If you are in need of guidance or would like assistance with repairing your credit score, please do not hesitate to contact my office at www.asapcreditrepairusa.com.