Were you aware that there are actually 30 distinct levels of credit scores? It's a little-known fact that many people are unaware of. When searching for the best credit score, individuals often receive conflicting answers from various sources on the internet. Unfortunately, the information provided online can be not just bewildering but sometimes even deceptive, leading them down an obscure and confusing path. My name is Joe Mahlow, and I have been involved in the financial literacy and credit repair industry for over 15 years. My aim is to offer you simple guidance about different topics, such as credit scores. Throughout my career, I have helped more than 20,000 clients improve their credit scores, and I hope to present you with enough information to do the same. So, without further ado, let's get started!

Contents:

Credit Scores: Understanding the Different Types

Understanding Credit Scores

Ideal Credit Score to Qualify for Various Mortgage Loans

Determining Credit Score Requirements for Car Buying

Tips for Improving Your Credit Score

Joe's Insights on Improving Your Credit Score

Credit Scores: Understanding the Different Types

When it comes to credit scores, two distinct models are utilised - the FICO and the Vantage model. Understanding the differences between these models is essential for anyone looking to manage their credit score effectively.

FICO Credit Score

FICO is the most widely used credit scoring model and is comprised of eight different models, from FICO 2 to FICO 10. Depending on the type of lender you use, you will receive a different FICO report. For example, if you are applying for a mortgage, the mortgage lender will typically pull your FICO 5 credit report, whereas a credit card application would usually mean a FICO 8 credit report.

While this may seem confusing, each report model has a different weighting, with various factors impacting each score more heavily. Your payment history on previous mortgages, for instance, would have a significant impact on a FICO 5 mortgage report, whereas previous credit card history is a critical factor in calculating a FICO 8 score.

If you want to visualise these different FICO scores, consider registering for an account on www.myfico.com.

Vantage Credit Score

Developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion), the Vantage scoring model has been created to compete with FICO. It is a newer model than FICO, used less frequently in lending, and counts personal loans and auto lending amongst its primary sectors of use.

While the Vantage score is accurate, it's important to note that it is not widely used by lenders just yet. Therefore, its accuracy may vary compared to FICO. Nevertheless, it can provide a general idea of your FICO score, which is essential knowledge for anyone working to improve their overall credit score.

Looking to the future, it's expected that the Vantage scoring model will become more popular in the next 5-10 years, as it adapts to current technological and financial trends. The FICO model, while still widely used, is now considered outdated and unable to provide the clearest representation of overall credit scores.

Ultimately, the power of credit reporting agencies means that if they have the data, then they are in an ideal position to provide the most accurate and helpful scoring data.

Understanding Credit Scores

Credit scores are essential because they play a significant role in your financial wellbeing. The two most common models used to evaluate credit are FICO and Vantage scoring, both with a range between 350 and 850. A score of 350 is the worst possible score, while 850 is the best. Achieving the best credit score requires understanding your standing during the journey towards establishing your score. Here are some of the vital score thresholds:

1. Scores at or below 620

Scores in this range are considered bad credit, indicating adverse credit history, high-balance credit card accounts, or the lack of credit cards. The best way to improve these scores is by making timely payments and having ten active revolving credit accounts. The Credit Builder Card or OpenSky Credit Card is highly recommended as they can effectively build your credit. When your score reaches the 620 range, you may start qualifying for an FHA home mortgage.

2. Scores between 640-680

This range is considered fair for good credit and means that you have established credit and may have some derogatory marks or accounts on your credit. You may also have high balances on your credit cards that you need to pay down. If you recently opened a new account and your score drops, don't worry; this is just a temporary effect.

3. Scores of 740+

Any score over 740 is considered "super-prime" and provides the best interest rates for most loans. If you have a score over 740, congratulations because you are among the 20% of the population with this score. Keep up the great work, continuously pay your accounts on time, and keep your revolving credit card accounts paid. You will always be in great shape!

Ideal Credit Score to Qualify for Various Mortgage Loans

The credit score requirement to qualify for a mortgage loan will vary depending on the loan type you are looking for. The regulations and guidelines for most mortgage loans are often similar, yet there are differences due to federal regulation and government backing. The three most common mortgage loan types are conventional loans, FHA loans, and VA loans. Here's how they differ:

1. Conventional Loans

Conventional loans are the most popular, and it usually provides you with the best savings option outside of the VA loan. This loan type does not require you to maintain private mortgage insurance (PMI). Usually, PMI is an additional cost that could raise your downpayment or monthly payments, which protects the lender if you stop making payments on your loan. Conventional loans usually have lower downpayment requirements and interest rates than other mortgage loans. This type of mortgage loan requires a credit score of at least 640, with a debt-to-debt ratio no higher than 43%.

2. FHA Loan

The FHA mortgage loan is a good option if you have lower credit scores, typically between 580 and 619. But remember, each loan program varies, so shop around for lenders that will provide you with the best financial option. PMI is required for at least 11 years, which could be an added burden to your monthly payments. This loan type has a higher debt-to-income limit of up to 50%, allowing you to purchase more homes than with a conventional loan if you have a lower income. FHA loans require as low as a 3.5% downpayment, which could help you secure a mortgage with less money out-of-pocket. But, this loan usually comes with a higher interest rate.

3. VA Loan

The VA loan has no specific credit score requirement, but they check for any defaulted loans and government-owed past-due debts during pre-qualification. This loan type is available only to United States Military serving or have served for at least 181 days, served 90 consecutive days during war, served 6 years with the National Guard, or their spouse was in the military and have died during active duty. VA loans typically have the best interest rates, and they usually do not require you to make any down payment. This loan is beneficial to Veterans and it's a way to honor their service.

Determining Credit Score Requirements for Car Buying

Your credit history plays a more significant role than your credit score when it comes to purchasing a vehicle. A high credit score is beneficial, but it doesn't guarantee lower interest rates unless you have a good credit history. Loan companies evaluate risk by examining previous and current credit histories when deciding on a car loan application. This means that individuals who have been delinquent on past auto loans or have had a repossession will have a more difficult time getting approved for a loan than those with good credit histories. While special finance lenders will grant loans to people with bad credit histories, they usually require higher down payments and additional dealership fees.

To get a good deal on a car loan on credit, it is best to have equity or a down payment. There isn't a specific credit score required for vehicle purchasing; however, a score of 680 and above is ideal. The rate you are charged for a car loan is determined by your credit score. As a result, someone with a higher credit score would pay a lower interest rate. For instance, someone with a credit score of 720 or above will usually pay an average of $5,500 in interest on a loan. Conversely, someone with a credit score below 580 will pay an average of $15,300 in interest on a loan. Therefore, maintaining a good credit score is crucial in purchasing a vehicle on credit.

Tips for Improving Your Credit Score

Improving your credit score requires dedication and patience, as building good credit takes time. Making small changes can improve your credit score gradually over time. Follow these tips to increase your credit score:

1. Open 3-5 revolving credit accounts

Revolving credit, like credit cards, can help improve your credit score quickly. Opt for secured credit cards like Open Sky or Credit Builder Card that focus on your ability to pay your card on time instead of your credit score. Revolving credit contributes to 30-35% of your overall credit score. Make sure to pay your balance on time and keep it at $5-10 each time you make a payment.

2. Request a credit limit increase

If you have active revolving credit card accounts, ask for a credit limit increase to help decrease the percentage of your credit utilization. Different credit card companies have varying processes for raising limits. Call your company and ask to fill out your current information and whether they will agree to give a limit increase.

3. Pay down your balances

Paying your credit card balances down increases your credit score significantly. Make a game plan and take an amount of your paycheck each month to pay your credit card down. The spending habits on your credit card play a massive role in your overall credit score, so it's essential to limit usage.

Joe's Insights on Improving Your Credit Score

We have all experienced a time when our credit score was not in the best shape. However, if you are determined to hone in on your credit situation and devote time and effort to improve it, you can expect to witness significant improvements to your credit score in a short time frame. Many individuals with poor credit have a tendency to be stuck in a perpetual cycle of credit troubles, often feeling like there is no way out. Building a stellar credit score takes time and energy, but those who are committed to prioritizing their credit will reap the rewards. A good starting point is to establish a budget and tackle any problematic spending habits, which will have a direct impact on your credit score. Furthermore, this article serves as a useful tool to gain a better understanding of credit. If you feel like you need assistance with repairing your credit score or guidance in the matter, feel free to contact us at www.asapcreditrepairusa.com.

Key takeaways:

• With determination and effort, you can expect to see significant improvements to your credit score.
• Establishing a budget and addressing any problematic financial behaviors can have an immediate impact on your credit score.
• Seeking professional help with credit repair and guidance is always an option if needed.