It's surprising to know that there are as many as 30 levels of credit scores. Many people tend to look up the best credit score online, only to be bewildered by the plethora of information that comes up. Not only is the information convoluted, but it can also be misleading and take you down an unhelpful path. I am Joe Mahlow, and I have dedicated the past fifteen years to finance education and credit restoration. My aim is to provide you with straightforward advice on various topics such as this one - credit scores. I have helped more than twenty thousand clients improve their credit scores, and I hope that I can give you sufficient information to do the same. Let's dive in!

Contents:

Different Types of Credit Scores: FICO vs. Vantage

Understanding a Good Credit Score

Qualifying Credit Scores for Different Mortgage Types

Determining the Ideal Credit Score to Buy a Car

Suggestions to Increase Your Credit Score

Tips from Joe for Improving Your Credit

Different Types of Credit Scores: FICO vs. Vantage

Two credit scoring models used in the evaluation of an individual's creditworthiness are the FICO model and the Vantage model. It is crucial to comprehend the differences in how they calculate credit scores.

FICO Credit Score

The FICO model is widely used in the lending sector. There are eight FICO scoring models, ranging from FICO 2 to FICO 10, which may produce different credit scores depending on the type of credit report.

Purchasing credit:

Depending on the type of lender, different FICO models may be used to pull credit reports. For example, your FICO 5 credit report may be pulled when applying for a home, while your Fico 8 credit report may be pulled when applying for a credit card.

Multiple scores:

There are several FICO scoring models because each credit report weighs various factors differently. For instance, a FICO 5 mortgage report places significant importance on prior mortgage history.

Vantage Credit Score

The Vantage scoring model, created by the three major credit reporting agencies, was established recently and is gaining popularity in certain sectors, such as auto lending and personal loans.

Accuracy:

Although the Vantage score is considered accurate, it is not widely used for lending purposes and is not as reliable as the FICO score. However, it may provide a good general idea of your FICO score when used in conjunction.

Vantage vs. FICO:

The Vantage model is gradually gaining traction due to its ability to provide current scoring models, whereas the FICO model is considered obsolete. Credit reporting agencies possess the most comprehensive credit score data collection globally and have the upper hand in providing the best scoring data.

To get a visual representation of your credit scores, visit www.myfico.com and create an account.

Understanding a Good Credit Score

Credit scores under both the FICO and Vantage models range from 350 to 850, with the former being the lowest and the latter being the highest. As you set goals towards achieving the highest score possible, it's imperative to understand where you stand as you build your credit. Here are some crucial score thresholds to help you on your journey:

1. 620 or below is considered bad credit.

A score in this range indicates adverse credit history, high-balance credit card accounts, or an absence of credit cards. The best way to improve your credit scores is to make timely payments and keep ten active revolving credit accounts open. Secured credit cards like Credit Builder Card or OpenSky Credit Card are an excellent option to build your score. If you reach the 620 credit score range, you can qualify for an FHA home mortgage.

2. 640-680 is considered fair for good credit.

Scores in this range usually mean you have established credit, but you may still have derogatory marks or accounts on your credit report and high balances on your credit cards, which you need to pay down. Newly opened accounts can also temporarily lower your scores, so don't panic if your score drops. It'll eventually bounce back.

3. 740+ is considered super-prime.

This range gives you the absolute best interest rates for most loans. If you have a credit score over 740, congratulations! You're part of the 20% of the US population with this score. Ensure you pay your accounts on time, keep your revolving credit card accounts paid, and maintain your score.

Qualifying Credit Scores for Different Mortgage Types

The credit score requirement for buying a house depends on the type of mortgage you want. There are three common types: conventional, FHA, and VA loans. Each type has its own set of guidelines and requirements, but they are regulated by the government. Here are the specifics:

1. Conventional loans:

These mortgages are the most popular and offer the best savings outside of VA loans. Conventional loans have a credit score requirement of 640 and a debt-to-debt ratio no higher than 43%. They typically have lower downpayment requirements and better interest rates.

2. FHA loans:

These are perfect for those with lower credit scores, between 580 and 619. Although you'll need to have PMI for at least 11 years, it can still be a great option for those whose budget is tight. An FHA loan allows a higher debt-to-income limit of up to 50% and only requires a downpayment as low as 3.5% of the purchase price.

3. VA loans:

While technically, there is no credit score requirement for VA loans, they will look at your history of defaulted loans and any government-owned past-due debts during the pre-qualification process. To qualify for a VA loan, you must have served in the US military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or your spouse lost their lives during active duty. This is the best loan option for veterans, with no downpayment required and typically the lowest interest rates available.

Determining the Ideal Credit Score to Buy a Car

When purchasing a car, having a good credit history is more crucial than a high credit score since it plays a significant role in loan approval. Although a good credit score is beneficial, it has less impact on the interest rate you are eligible for. Regardless, whenever you apply for a car loan, lenders will scrutinize your past and current credit histories to gauge the risk involved in extending credit. If you had issues like previous late payments or repossession, lenders may find it challenging to approve your request. However, some lenders who specialize in special finance or worse credit may approve car loans despite previous repossessions but with certain criteria to meet. These include a higher down payment and additional dealership fees. To lessen their risk, dealerships will require a fee to approve your loan, which they cover by selecting cars with higher markups. Lastly, to have more purchasing power when buying a car on credit, you need to have equity or a down payment.

Credit Score Range for a New Vehicle

Credit score alone does not guarantee loan approval since lenders consider various factors. However, a credit score of at least 680 is ideal for securing a car loan. Scores below this range increase the interest rates charged as you pose a higher risk to creditors. Based on the current data, different credit scores reflect various interest rate charges. A score above 720 incurs an average of $5,500 in interest charges, while a score of 580 attracts an average of $15,300 in interest on a loan. Ultimately, the higher your score, the lower the interest charges reflected, which significantly impacts your credit score.

Suggestions to Increase Your Credit Score

Improving your credit score is not an overnight process; it requires consistent effort over a period of time. Being patient is key as impulsive decisions can lead to further harm to your credit score. However, there are simple steps you can take today to improve your credit score, such as:

1. Open 3-5 revolving credit accounts:

Applying for a secured credit card that emphasizes your ability to make timely payments is a good starting point. It facilitates building credit even if you have limited credit or are looking to restore it. Revolving credit accounts make up 30-35% of your credit score and help increase your credit score quickly, although it can take 2-4 months to show progress. Make sure to keep your balance at around $5-10 and pay off your bill on time.

2. Raise your limits:

You can request for a credit limit increase to help raise your overall credit limits, which would consequently lower your credit utilization percentage. If you have active revolving credit card accounts, you can quickly ask for an increase through an online portal or by calling your credit card company. Your income and credit history are key factors considered before a credit limit increase is approved.

3. Pay down your balances:

Lowering outstanding balances and keeping them close to zero can significantly impact your credit score. Limit your usage to small purchases and pay your bills with a balance of $1-5. If you currently have high balances, allocate a certain percentage of your paycheck each month to pay off the balances until they are paid/reduced. Abstain from overspending with your credit card as it can counteract your efforts and lead to compounded interest rates.

Tips from Joe for Improving Your Credit

Let's be honest: most of us have experienced the frustration of having subpar credit at some point in our lives. However, if you're serious about improving your credit score, it's essential to commit time and effort to the process. Unfortunately, many people fall into the trap of thinking that bad credit is a life sentence and that fixing it is impossible. However, it's possible to make significant headway towards developing a strong credit score with the right strategies. By committing to improving your spending habits, creating a budget, and taking steps towards repairing your credit, you can see real progress. If you're looking for more information on how to improve your credit score or need help with credit repair, reach out to our office today at www.asapcreditrepairusa.com.