It's astounding to learn that credit scores come in 30 different levels. Not many people are aware of this fact and may often find themselves getting conflicting responses when trying to inquire about the best credit score. Finding information in the digital age can, at times, be confusing and misleading. This is where my expertise comes in - I'm Joe Mahlow, and I have dedicated over fifteen years to both financial literacy and credit repair. My aim is to offer you unfiltered advice on various subjects, such as today's topic - credit scores. Having lent a helping hand to more than twenty thousand clients, I am confident that the knowledge I share with you today will assist you in transforming your credit score. So without further ado, let's delve into it.

Contents:

Various Types of Credit Scores

Determining a Good Credit Score

What is the Appropriate Credit Score to Buy a Home?

Ideal Credit Score to Buy a Car Understanding the Impact of Credit History

Tips for Boosting Your Credit Score

Insights from Joe

Various Types of Credit Scores

To understand credit scores, you must be familiar with the two primary credit scoring models: the FICO model and the Vantage model. It's necessary to understand the differences in how they calculate your credit score.

FICO Credit Score

The FICO credit scoring model is the most widely used and popular credit scoring model. It has eight different models, from FICO 2 to FICO 10, and you'll get a different credit score depending on your credit report. Different FICO models are used depending on the type of lender, so a home mortgage lender will most likely pull your FICO 5 credit report, while a credit card company will use your FICO 8 report.

Why So Many FICO Scores?

Credit reports have different weights, with more crucial factors for the lender having a more significant impact on a credit score than less important ones. For instance, a FICO 5 mortgage report weighs heavily on previous mortgage history, meaning a great payment history will weigh more than no or negative history. Credit card companies primarily use the FICO 8 report, and your previous credit card history will impact this score the most. Auto lenders mainly pull FICO 2 reports, and your scores will weigh heavily on your previous auto history.

If you want to see your different FICO scores, go to www.myfico.com and sign up for an account.

Vantage Credit Score

The Vantage Score scoring model, developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion), competes with the FICO scoring model. While FICO has been used since the 1970s, Vantage is a newer scoring model. Credit monitoring websites in the US frequently use Vantage to provide users with a free copy of their credit reports.

Is the Vantage Score Accurate?

The Vantage Score is accurate, but its accuracy varies depending on context. Since it's not widely used for lending purposes, it won't be as accurate as FICO. Nonetheless, it's still a useful “general idea” of your FICO score since it’s difficult to know your FICO score without paying for it or having a lender pull your credit report.

In the future, Vantage might become more popular in the lending sector for its ability to provide the best scoring models based on today's standards. The FICO scoring model may be outdated and doesn't give users a clear representation of their credit scores. Credit reporting agencies have the most significant data on credit scores.

Determining a Good Credit Score

Credit scores for the FICO and Vantage models span from 350 to 850. The higher your score, the better, with 350 being the lowest score and 850 being the highest score. It's important to be aware of where you stand in building your credit scores. Below are some essential score thresholds:

1. 620 or below:

This credit score is viewed as bad credit. Such a score indicates adverse credit history, high-balance cards, or no credit cards at all. The best strategies to improve your score include making timely payments and having ten active revolving credit accounts open. Consider secured credit cards such as the Credit Builder Card or OpenSky Credit Card to help develop your credit. Once you get to a 620 credit score, you can qualify for an FHA home mortgage.

2. 640 - 680:

This credit score is seen as fair for good credit. It means you've established credit, but you may have derogatory marks or accounts on your credit report or high balances on your credit cards that you will need to pay down. Your score may lower temporarily if you recently opened an account. Don't be alarmed; your score will rebound.

3. 740 or higher:

Any credit score above 740 is deemed "super-prime," and you'll qualify for the best interest rates for most loans. If you have this score, you're among the 20% of the US population with an excellent rating. Keep paying your accounts on time and managing your revolving credit card accounts, and you'll continue to maintain excellent credit.

What is the Appropriate Credit Score to Buy a Home?

The answer to the question "what is the appropriate credit score to buy a house?" depends on the kind of mortgage loan you want to apply for since the requirements and guidelines for the majority of mortgage loans are regulated federally and backed by the government and may be similar or different. There are three common mortgage loan types, including conventional loans, VA loans, and FHA loans.

1. Conventional Loans

Conventional loans are very popular and are the best savings loan option apart from the VA loan. These loans do not necessitate you to maintain a private mortgage insurance (PMI), an extra cost that could increase your monthly payment or down payment. PMI protects the lender in case you cease payment on your loan. Conventional loans typically have better interest rates and lower down payment needs than other mortgage loans. A typical requirement for conventional mortgage loans is a credit score of 640 and a debt-to-debt ratio of 43%.

2. FHA Loan

The FHA mortgage loan is for borrowers with lower credit scores ranging from 580 to 619. Remember that loan programs vary, so if you fall within the credit score limits, do a comparison search for different lenders that offer you the best financial option. FHA loans demand that you maintain PMI for a minimum of 11 years, which could be an additional cost to your mortgage and something to consider if you're on a budget. This type of loan usually has a higher debt-to-income limit of up to 50%, which means you can buy more homes than you would with a conventional loan if your income is low. Lastly, the down payment requirements on an FHA loan are as low as 3.5% of the purchase price, which means it could enable you to get into a mortgage with less money out of pocket than a conventional loan, but you will typically have a higher interest rate.

3. VA loan

With a VA loan, there isn't technically a credit score requirement, but pre-qualification involves inspecting for previous defaulted loans and government-owed past-due debts. To qualify, you must have served in the United States Military for at least 181 days, served 90 consecutive days during a wartime, served 6 years with the National Guard, or your spouse passed in active duty. VA loans usually have the most favorable interest rates, and they do not usually demand down payments. The VA Loan seems to be an excellent way to reward our veterans.

Ideal Credit Score to Buy a Car: Understanding the Impact of Credit History

When it comes to buying a car, your credit history plays a more significant role in determining what you qualify for than your credit score alone. While a good credit score is essential, it plays a smaller part in the interest rate you receive. Lenders typically evaluate your current and past credit history to determine the level of risk involved in extending credit. As a result, individuals with a poor credit history, such as those who've been late on vehicle payments or had a repossession in the past, may have a harder time getting approved. However, special finance lenders may still qualify them for a car loan, albeit with specific conditions like a higher down payment and extra dealership fees. Dealerships will pay the fees to approve such loans, and in some cases, may even select the car model for you. Additionally, having equity or a down payment will increase your leverage when purchasing a car on credit. As for credit scores, while no specific score guarantees approval, a score above 680 is ideal. A lower score increases the interest rate and the risk you pose to the lender. Data indicates that a higher credit score leads to lower interest rates, thus impacting your overall credit score positively.

Credit Score Range for Buying a New Car

When purchasing a new vehicle, interest rates and fees vary depending on various factors, including credit history. A credit score above 720 will likely result in a $5,500 average interest rate on a loan. In contrast, a score above 680 will pay an estimated $6,600, and a score above 650 will pay approximately $8,100. Those with scores of 615 and below can expect to pay around $10,200 up to $15,300. These statistics show that a higher credit score leads to lower interest rates and lower overall costs.

Tips for Boosting Your Credit Score

Improving your credit score takes time and persistence, but there are several things you can do to raise your score right now with minimal effort. Building credit is a process, and it is essential to be patient to avoid making irrational decisions that can worsen your financial problems.

Here are some actions you can take to boost your credit score:

1. Open 3-5 Revolving Credit Accounts

Revolving credit is one of the best options for increasing your credit score. Obtaining a loan can be difficult for someone with limited credit or those looking to rebuild their credit. Instead, start with a secured credit card such as Open Sky or Credit Builder Card. Focus on paying your balance on time and keeping it below $10. Use the card to make small purchases like gas or groceries, and avoid overspending.

2. Increase Your Credit Limits

Request a credit limit increase for your credit cards to increase your overall credit limit and lower your credit utilization percentage. Utilizing your credit cards to the fullest can harm your credit scores, as credit card balances exceeding 30% of your overall limits can hurt your score. Call your credit card company and ask for a “Credit Limit Increase.” They will usually ask for your current income, and they will decide whether they will increase your limit.

3. Pay your Balances Down

Ensure that you keep your balances low and close to zero and pay your bill each month. You don't have to use your credit card every month; use it for small purchases and leave a balance of $1-$5. With high balances, develop a more streamlined game plan to pay off your credit card and reduce the incidence of running balances. Aim to limit your credit card usage to keep your credit card spending habits in check.

Insights from Joe

Having a less than impressive credit history is a common predicament among many individuals. However, if you are committed to putting in the effort to address your current credit situation, you can witness significant improvements in your credit score fairly quickly. Unfortunately, most people with poor credit tend to feel helpless, thinking that good credit is unachievable. In reality, attaining a favorable credit score requires dedication and perseverance, and those who prioritize their credit and spending habits are bound to succeed. Begin by working on a budget and addressing any problem spending tendencies as this will have a direct impact on your credit score. This write-up aims to expand your knowledge about credit. If you require guidance or help with credit repair, do not hesitate to contact my office today at www.asapcreditrepairusa.com.