Were you aware that there are thirty distinct levels of credit scores? Many individuals are unaware that when they seek out the optimal credit score, they usually receive a plethora of answers from various search engines. The abundance of information can often be unclear and even misleading, sending you on a confusing path. My name is Joe Mahlow, and I have spent over fifteen years in the realm of financial literacy and credit repair. My objective is to provide you with honest information on various topics, starting with credit scores. Throughout my career, I have assisted over twenty thousand clients in elevating their credit scores, and I am eager to do the same for you! Without further ado, let's delve into it.

Contents:

Understanding Different Credit Scores

Understanding Credit Scores: Ranges and Thresholds

Credit Score Requirements for Different Mortgage Loan Types

Considerations for Credit Scores When Buying a Car

Tips to Improve your Credit Score

Reflections by Joe

Understanding Different Credit Scores

When it comes to credit scores, there are two primary models: FICO and Vantage. Having a handle on both models is crucial to grasp the differences in how they calculate your credit score. Here's more information:

FICO Credit Score

Most lenders use FICO's 8 different models, ranging from FICO 2 to FICO 10. Though this may seem confusing, the models differ in which credit report they analyze. For example, a mortgage lender would use FICO 5 while a credit card company would use FICO 8. Each model has a different "weight," meaning factors important to lenders will impact your credit score more than less significant factors. For instance, your mortgage payment history weighs heavily on your FICO 5 score.

Vantage Credit Score

Created by the three major credit bureaus (Equifax, Experian, and TransUnion), the Vantage Score competes with FICO. While personal loan and auto lending sectors have begun to adopt it, FICO remains the most widely recognized model. Free credit monitoring websites frequently offer Vantage scores, which provide a general idea of FICO scores.

Is Vantage Score accurate?

Accuracy depends on context since Vantage isn't widely adopted for lending purposes. Instead, it offers an approximation of your FICO score. Credit bureaus have the data and thus can provide the best scoring information. Though Vantage may become the go-to model in the future, for now, it's primarily used for giving an estimate of credit scores.

Understanding Credit Scores: Ranges and Thresholds

Credit scores are essential in determining your creditworthiness, and the two most commonly used scoring models are the FICO and Vantage scores, ranging from 350 to 850. Here are some vital score thresholds to help you achieve the highest scores possible:

1. 620 or below:

This range is considered bad credit and may mean you have derogatory marks, high balances on credit card accounts, or no credit card accounts at all. The best way to improve your score is to have ten active revolving credit accounts and make timely payments. To build your credit, you can consider secured credit cards like Credit Builder Card or OpenSky Credit Card. When you reach 620, you might qualify for an FHA home mortgage.

2. 640-680:

This range is considered fair for good credit, indicating that you have established credit history. However, you may have some derogatory marks, high balances, or newly opened accounts that can temporarily drop your score. It's best to pay down high balances and let the new accounts age to see a positive change in your score.

3. 740+:

Any credit score exceeding 740 is considered "super-prime" and puts you in a prime position. You belong to the 20% of the US population with this score range and will receive the lowest interest rates. Keep up the good credit habits by paying your accounts on time and maintaining a good mix of revolving credit card accounts.

Note: Your credit score plays a significant role in your financial life, and maintaining a good score is essential in getting the best financial deals.

Credit Score Requirements for Different Mortgage Loan Types

The credit score you need to buy a house depends on the mortgage loan type you are seeking. Similar regulations and guidelines exist for most mortgage loans but can vary in certain cases. Here are the most common mortgage types and their credit score and debt-to-debt ratio requirements:

1. Conventional Loans

   Conventional loans are the most popular mortgage type. They usually require a credit score of at least 640 and a debt-to-debt ratio no higher than 43%. These loans do not have PMI requirements, which is an added cost. Further, conventional loans have low downpayment requirements and better interest rates than other loan types except VA loans.

2. FHA Loans

   FHA loans typically require credit scores between 580 and 619. Though requiring PMI for at least 11 years, it is an excellent option if you have limited funds. Also, you can purchase more than one house with FHA loans as the debt-to-income limit is up to 50%. However, FHA loans can have a higher interest rate than other loans.

3. VA Loans

   VA loans are available to military personnel based on previous government service. However, VA loans do not have a credit score requirement. Instead, they consider previous defaulted loans or government-owed past-due debts to pre-qualify loan seekers. VA loans do not require a down payment, and they have the best interest rates.

Considerations for Credit Scores When Buying a Car

Your credit history, rather than just your credit score, is the main factor that dealerships consider when determining what you qualify for when buying a car. Although a higher credit score is important, other elements play a more significant part in determining the interest rate that you qualify for. Specifically, the lender will scrutinize if you have had previous issues with credit. If you have encountered credit problems and then apply for a car loan, the dealership will assess your prior and current credit history to identify risks associated with extending credit. Someone who has been late on a current or previous auto loan, or has had a car repossessed, will encounter more challenges getting approved for a loan than someone who has not. Nevertheless, bad credit or special finance lenders will qualify almost anyone for a car loan even if they have had previous repossessions but they add some criteria to the approval that must be met, such as higher down payments and additional fees to cover the risk. Dealership fees often cover the risk for the loan in case you default. To have the upper hand when purchasing a vehicle on credit, it is always better to have equity or a down payment.

Credit Score Range for Purchasing a New Vehicle

Credit scores do not indicate your approval for a car loan since there are various factors to consider, such as credit history. However, having a credit score higher than 680 is ideal. A score lower than this may increase the interest rate you are charged, due to the risk you pose to the lender. Different credit scores can affect the interest paid on a loan which is based on your credit score.

For example:

1. Those with a 720 credit score or above will pay an average of $5,500 in interest on a car loan.
2. Those with a 680 credit score or above will pay an average of $6,600 in interest on a car loan.
3. Those with a 650 credit score or above will pay an average of $8,100 in interest on a car loan.
4. Those with a 615 credit score or above will pay an average of $10,200 in interest on a car loan.
5. Those with a 580 credit score or above will pay an average of $13,900 in interest on a car loan.
6. Those with a credit score of 580 or above will pay an average of $15,300 in interest on a car loan.

This data graphically portrays how high credit scores can lead to lower interest rates, thus reducing the overall cost of a car loan.

Tips to Improve your Credit Score

Increasing your credit score is possible with some simple actions that require little effort. However, bear in mind that it takes time to build a good credit score. Thus, patience is crucial to avoid making irrational or bad decisions that could worsen your situation.

Here are some measures you can take to improve your credit score:

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

Revolving credit is one of the best options to maximize your credit scores. It is easier than obtaining a large loan, especially if you have limited credit or need to rebuild your credit. A secured credit card with no focus on your credit score, such as Open Sky or Credit Builder Card, could be an excellent choice. Revolving credit can quickly raise your credit scores, but it may take a few months to show the effect. Paying your balance on time and keeping it between $5 and $10 will help you increase your credit scores. You should limit the use of the card to small purchases, such as gas or groceries.

2. Raise Your Limits!

Increasing your credit limit can also help you improve your overall credit limits and reduce your credit utilization percentage. You can request a credit limit increase for your credit cards. Contact your credit card company via your online portal or call them, and request a “Credit Limit Increase.” The company will typically require that you submit some information, including your current income. They will scrutinize your credit history and decide whether to increase your credit limit.

3. Pay Down Your Balances!

Keeping your balance low and close to zero will have a positive impact on your credit score. You can limit your credit card usage to small purchases and pay your bills each month, leaving a $1–5 balance on your credit card. If you have high balances, make a plan to reduce your credit card debt gradually. Using an “x” percentage of your earnings each month to pay it down is advisable. Avoid running up your balances after paying them down. Your credit card usage habits are crucial to your overall credit score.

Reflections by Joe

We have all experienced times where our credit score was below average. However, if you are determined to improve your credit situation and devote time and energy towards repairing your credit, you can rapidly upgrade your credit score. Sadly, many individuals with poor credit assume that they will have ongoing credit issues for the rest of their lives, and they feel like having good credit again is out of reach. To establish an excellent credit score, it demands lots of exertion, and those individuals who are eager to prioritize their credit will ultimately succeed. First and foremost, establish a budget and improve any bad spending habits which will directly impact your credit score. This post aims to enhance your knowledge of credit. If you need direction or assistance improving your credit score or seeking credit repair, do not hesitate to contact my office today at www.asapcreditrepairusa.com.

Key points:

• Taking the time and effort to improve your credit situation leads to significant changes in your credit score.
• Many believe that having good credit again is impossible after experiencing poor credit, which is not true.
• It takes a lot of work and prioritization of credit to develop an excellent credit score.
• Starting with a budget and correcting bad spending habits will positively impact your credit score.