It's surprising how many people are unaware that there are actually 30 different levels of credit scores. When you look for information on the best credit score, you'll likely find a plethora of answers on Google. Unfortunately, not all the information available is clear or reliable, which can make it difficult to know where to begin. My name is Joe Mahlow, and I've been working in the financial literacy and credit repair field for over fifteen years. I strive to provide honest advice on various topics, including credit scores. I've helped more than twenty thousand clients improve their credit scores in the past, and I'd like to share some useful information with you. So, without further ado, let's dive into it.

Contents:

Understanding the Different Types of Credit Scores

Understanding What a Good Credit Score Is

What is Considered a Good Credit Score for Purchasing a Home?

Credit History vs. Credit Score When Buying a Car

Tips for Increasing Your Credit Score

Tips from Joe on How to Improve your Credit Score

Understanding the Different Types of Credit Scores

Credit scores are used to determine an individual's creditworthiness. There are two primary credit scoring models- the FICO model and the Vantage model. Familiarizing yourself with both is vital, particularly regarding their differences in computing your credit score.

FICO Credit Score

The FICO score is the most widely used credit scoring model, with eight different versions ranging from FICO 2 to FICO 10. Your credit score will vary depending on what credit report the lender pulls. For instance, if you apply for a home mortgage, the lender will probably pull your FICO 5 credit report, while a credit card application will likely prompt a FICO 8 credit report.

Why does each credit report have a different FICO score?

Each report has a different weight, meaning that critical factors to the lender, such as mortgage history, carry more significant weight to your score than less important ones. This applies to all FICO scoring models.

Vantage Credit Score

The Vantage Score model was developed by the three major credit reporting agencies as a competitor to the FICO model. Vantage is relatively new, while the FICO model has been in use for over forty years. Although FICO currently dominates the lending industry, the Vantage Score is gaining traction in some sectors, including personal loans and auto lending.

Is the Vantage Score accurate?

The Vantage Score is accurate, but only in specific contexts. It's not commonly used for lending, so it's not a precise representation of your actual lending score. It's best used as a general idea of your FICO score. Although the FICO model is currently more recognized, I believe that Vantage will become more widespread in lending circles in the next five to ten years.

In conclusion, credit reporting agencies are data collection giants and have the upper hand in providing the best credit scoring data. Understanding both the FICO and Vantage models is essential, giving you a comprehensive view of your creditworthiness. There are free credit score resources available to help you keep track of your different scores; for example, you can visit www.myfico.com to see your different credit scores.

Understanding What a Good Credit Score Is

Both the FICO and Vantage models rank credit scores from 350 to 850, with 350 being the lowest and 850 being the highest. Having a clear understanding of where you currently stand is vital when working towards attaining the highest score possible. Here are some score threshold guidelines:

1. 620 or below

Credit scores within this range are considered bad credit. If your score is below this threshold, it could be due to an unfavorable credit history, high-balance credit card accounts, or no credit cards at all. You can improve your credit scores by ensuring timely payments and having ten active revolving credit accounts open.

Two recommended secured credit cards that can help you build credit are the Credit Builder Card and OpenSky Credit Card. Once you reach a 620 credit score, you can start qualifying for an FHA home mortgage.

2. 640-680

Scores within this range are considered fair for good credit. It indicates that you have an established credit history, but may have some derogatory marks on your report or high balances on your credit card accounts to pay down. A temporary drop in scores can be expected if you open a new account when in this range.

3. 740+

Any credit score over 740 is considered "super-prime" and is the ultimate goal. It offers the best interest rates for most loans. You're part of the 20% of the US population with this score if you have a credit score of over 740. Keep up the good work, ensure that you pay your accounts on time, and maintain your revolving credit card accounts in good standing, and you will be in excellent shape.

What is Considered a Good Credit Score for Purchasing a Home?

Determining a good credit score to qualify for a home loan depends on the type of mortgage loan you are interested in. While most requirements and guidelines for mortgage loans are similar, there are differences between the three most common loan types - conventional loans, FHA loans, and VA loans. Here’s a breakdown of each loan, including credit score requirements.

1. Conventional Loans

Conventional loans are a great savings loan option, exempting you from Private Mortgage Insurance (PMI) and providing lower downpayment requirements and better interest rates than other loan types. To qualify, your credit score needs to be a minimum of 640 and keep debt-to-debt ratios below 43%.

2. FHA Loans

The Federal Housing Administration (FHA) loan is available for lower credit scores, typically ranges between 580 to 619. Borrowers with a lower credit score than 580 may qualify with a 10% down payment. FHA loans require you to keep PMI for at least 11 years and have a higher debt-to-income limit of up to 50%. Although the downpayment requirement is as low as 3.5%, the interest rate is usually higher than conventional loans.

3. VA Loans

Veterans Affairs (VA) loans offer the best interest rates available and do not require a down payment. Although there isn’t a technical credit score requirement for VA loans, they opt to prequalify individuals who had defaulted loans before and any government owed past-due debts. To qualify for a VA loan, serving in the US military for at least 181 days, serving 90 consecutive days during wartime, serving six years with the National Guard, or having a spouse in the military who lost their life during active duty is mandatory. As the VA loan is perfect for returning veterans, it is highly recommended and appreciated.

Credit History vs. Credit Score When Buying a Car

When shopping for a car, prospective buyers may wonder about the credit score they need to qualify for a loan. However, while having a higher credit score is important, lenders pay more attention to your credit history when evaluating the risk involved in lending to you. Late payments, repossession, or other credit issues in your history can make it harder to get approved for a loan or affect the interest rate you qualify for.

In fact, even if you have bad credit, some special finance lenders will approve you for a loan but with some specific requirements, such as a higher down payment and fees. Dealerships may also charge fees to cover the risk of loan default and choose the vehicle you can buy. So, having equity or a downpayment is crucial.

Regarding credit scores, while there is no exact number that guarantees approval, having a score over 680 is ideal. The interest rate you could get increases as your score drops, impacting the overall amount of interest you'll pay. The data shows that someone with a 720 credit score will pay around $5,500 in interest on a loan, while someone with a 580 credit score will pay around $15,300.

Tips for Increasing Your Credit Score

When it comes to building a good credit score, patience is key. It takes time and effort, but there are many things you can do right now to help increase your credit score. Here are some tips that can help:

1. Open a few revolving credit accounts

Opening 3-5 revolving credit accounts can help maximize your credit scores. A secured credit card like Open Sky or Credit Builder Card that focuses on your payment ability is a great option for someone with limited credit or looking to rebuild their credit. Revolving credit makes up 30-35% of your overall credit score and helps build credit scores quickly.

2. Request a credit limit increase

Requesting a credit limit increase for your credit cards can help lower your credit utilization percentage, which is affected when your credit card balances exceed 30% of your overall limits. Each company may have different processes for increasing credit. Call your credit card company and request a “Credit Limit Increase” if you're unsure what to do.

3. Pay down credit card balances

Keeping your credit card balances low and close to zero helps keep your credit score up. It's important to limit credit card usage and when paying your bill each month, leave about a $1–5 balance on your credit cards.

Remember, building credit takes time and effort but it is doable. By following these tips, you can help increase your credit score and build a solid financial foundation.

Tips from Joe on How to Improve your Credit Score

We've all experienced a time where our credit score was not up to par. However, taking your credit situation seriously and devoting time and effort to improving it can yield significant changes in a relatively short period of time. Many people with poor credit fall into the trap of thinking that they will always have credit problems, and that building good credit is an impossibility. Achieving a great credit score requires significant effort, but prioritizing your credit and managing your spending habits can lead to success. Start by outlining a budget and addressing any problematic spending habits, as this will positively impact your credit score. This article is designed to provide further insight into credit management. If you require assistance with credit repair or guidance on improving your credit score, please don't hesitate to contact our office at www.asapcreditrepairusa.com.

Key takeaways:

- Improving your credit score requires dedication and effort

- Do not be discouraged if you have struggled with credit in the past

- Implementing a budget and fixing poor spending habits can positively impact your credit score.