It's important to be aware that credit scores come in 30 different levels - a fact that often goes unnoticed by many individuals searching for the "best" credit score. Unfortunately, the plethora of information available online can be confusing and even misleading. As someone who has worked in financial literacy and credit repair for over a decade and a half, my aim is to provide honest and straightforward advice on topics such as credit scores. Throughout my career, I have successfully assisted over twenty thousand clients in improving their credit scores. Now, I hope to impart my knowledge to you and equip you with the tools needed to do the same. So, without further ado, let's dive right in!

Contents:

Different Credit Scoring Models

Understanding Good Credit Scores

What's the Credit Score Needed to Purchase a House?

Determining the Credit Score Range for Buying a Car

How to Improve Your Credit Score

Joe's Insights on Improving Your Credit Score

Different Credit Scoring Models

There are two primary credit scoring models that borrowers should be familiar with: the FICO credit scoring model and the Vantage credit scoring model. Although both models are important to understand, there are some noticeable differences in how they calculate credit scores.

FICO Credit Score

The FICO credit scoring model is the most popular and widely used system and comprises eight different models ranging from FICO 2 to FICO 10. It is common to have different credit scores depending on the credit report you receive. This is because different types of lenders use different FICO reports. For example, a mortgage lender will usually access FICO 5 credit reports, while a credit card company will likely access FICO 8 credit reports.

The reason there are many FICO scores is that each credit report has varying importance, meaning that different factors affect your score differently. Take the FICO 5 mortgage report as an example; this score would give more weight to your previous mortgage history. Similarly, credit card companies mainly use FICO 8, meaning previous credit card usage will have a more significant impact on this score. Auto lenders pull FICO-2 reports, with your previous auto history having a strong influence on your scores.

To review your different FICO scores, sign up for an account on www.myfico.com.

Vantage Credit Score

The Vantage Score was developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion) to compete with the FICO model. Although it is a relatively new scoring model compared to FICO, it is becoming increasingly popular in some sectors like personal loans and auto lending.

While the Vantage Score is accurate, it is not widely used for lending purposes. Meaning it may not accurately reflect your actual lending score. Instead, think of it as an excellent way to identify where your overall scores are. As more data is collected via social media and other channels, the Vantage scoring model may be considered more widely used by lenders the next 5-10 years due to its ability to provide better-scoring models based on today’s standards. While the FICO scoring model is outdated, credit reporting agencies are the biggest data collection agencies outside of social media. They have the most comprehensive database and, therefore, a better position to provide the best scoring data.

Understanding Good Credit Scores

Credit scores are measured on a range of 350 to 850 for both the FICO and Vantage models, with 850 being the highest score and 350 being the lowest. If you aim to have the best scores, it's crucial to know where you stand. Here are some essential credit score thresholds:

620 or below

• This range signifies bad credit and suggests adverse credit history, high-balance credit cards, or a lack of credit cards. Timely payments and having active revolving credit accounts are the best ways to improve scores. Secured credit cards like Credit Builder Card or OpenSky Credit Card may help with building credit. A 620 score can qualify you for an FHA home mortgage.

640-680

• A fair to good credit score range indicating established credit but may have derogatory marks or high outstanding balances on credit cards. Additionally, newly opened accounts can momentarily decrease scores. However, these temporary fluctuations are not to be panicked about.

740+

• Scores above 740 are considered super-prime and offer the best interest rates for most loans. Individuals with such credit score are among the top 20% of the US population. Maintaining timely accounts and paying revolving credit card accounts can ensure a stable score above 740. Congratulations if you have managed to achieve this score!

What's the Credit Score Needed to Purchase a House?

When it comes to purchasing a home, your required credit score will depend on the type of mortgage loan you wish to qualify for. Although there may be some differences, most mortgage loans have similar requirements and guidelines due to federal regulation and government backing. The three most common mortgage loan types are conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular and offer the best "savings" loan option outside of the VA loan. You do not have to pay for private mortgage insurance, which can be costly and increase your downpayment or monthly payment. This type of loan typically has lower downpayment requirements and better interest rates compared to other loans, with a credit score requirement of 640 and a debt-to-debt ratio no higher than 43%.

FHA Loan

For buyers with lower credit scores, typically between 580 and 619, there is the FHA mortgage loan. However, you should shop around for different lenders to find the best financial option, as all loan programs have different requirements. You will be required to maintain PMI for at least 11 years, and the loan typically has a higher debt-to-income limit of up to 50%. FHA loans require a downpayment as low as 3.5%, but you will generally have a higher interest rate.

VA Loan

VA loans do not technically have a credit score requirement, but they will consider your history of previously defaulted loans and any government-owed overdue debts when pre-qualifying you. To qualify for a VA loan, you must have 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 have lost your spouse during active duty. VA loans usually have the best interest rates and do not require a down payment, making them an excellent option for veterans.

Determining the Credit Score Range for Buying a Car

When aiming to purchase a car, your credit history holds more weight in deciding your eligibility than your credit score. While having a high credit score is essential, it does not significantly affect the interest rate for which you qualify. The interest rate is determined based on your previous and present credit history and the risks linked with extending credit. Thus, someone who has defaulted on a previous auto loan or has been late on a current loan faces a greater challenge in obtaining loan approval than someone with better credit. However, even with bad credit, there are lenders who can approve you for a loan with specific conditions, including higher down payment and dealership fees. A down payment decreases the risk involved, giving you more leverage.

Regarding credit scores, there is no set score for approval as multiple other factors come into play. But nonetheless, a credit score of above 680 is usually ideal. Scores below this can increase the interest rates charged due to the risks posed by the borrower. In fact, the credit score ultimately determines the amount of interest you will pay according to a particular rate per score. As a general rule, the higher the credit score, the less interest you will pay, which benefits the overall credit score.

How to Improve Your Credit Score

Boosting your credit score takes time and effort, but there are several steps you can take right now to help increase it. Practicing patience is crucial, as making hasty and irrational decisions can only make matters worse. Here are some things you can do to improve your credit score:

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

Revolving credit is an excellent option to bolster your credit scores quickly, especially if you have limited credit or are looking to rebuild it. Start by opening a secured credit card such as Open Sky or Credit Builder Card, which focus more on your ability to pay on time and other factors instead of your credit score. Revolving credit accounts account for 30-35% of your overall credit score, and it can take 2-4 months to see the effects on your credit score. You should keep the balance at $5-10 each time you make a payment to make sure you pay your balance on time.

2. Raise your limits

You can request a credit limit increase for your active revolving credit card accounts, which will increase your overall credit limits and lower your credit utilization percentage. You can do this online or by calling your credit card company and requesting a "Credit Limit Increase." It usually requires an excellent payment history of 7-15 months on a credit card before they agree to do this.

3. Pay down your balances

Keeping your balance low and close to zero is essential for improving your credit score. Use your credit cards for small purchases, and leave about a $1-5 balance on them when paying your bill. If you have high balances, make a payment plan to pay them down by setting aside a percentage of your paycheck each month. It's crucial to limit your credit card usage since your credit card spending habits play a massive role in your overall credit score.

Joe's Insights on Improving Your Credit Score

As most of us have experienced, having poor credit can be a frustrating situation. However, taking your credit situation seriously and committing time and effort towards improving it can yield significant and rapid results. Many people with bad credit resign themselves to the idea that they will never have good credit again, but this is not true. Achieving a great credit score requires work and dedication, and those who prioritize their credit and spending habits will reap the rewards. One way to start is by creating a budget and identifying and correcting bad spending habits, which will positively impact your credit score. If you want to better understand credit or need help with credit repair, don't hesitate to contact us at www.asapcreditrepairusa.com.

Points to remember:

• Poor credit is a common issue that can be overcome with effort.

• It's possible to achieve a great credit score with work and dedication.

• Creating a budget and correcting bad spending habits is a good starting point.

• If you need guidance or help with credit repair, visit www.asapcreditrepairusa.com.