It may come as a surprise to many, but did you know that there are 30 levels of credit scores out there? Often, people turn to Google to search for the best credit score, resulting in a multitude of conflicting answers that can be overwhelming and confusing. It's important to be aware of the misleading information that exists and avoid falling down a dark rabbit hole. My name is Joe Mahlow and I have over fifteen years of experience in the financial literacy and credit repair industry. My mission is to provide you with unfiltered insights on various topics, specifically credit scores. I am proud to have helped more than twenty thousand clients transform their credit scores, and my goal today is to equip you with the necessary information to do the same. So let's dive in!

Contents:

Understanding Different Types of Credit Scores

Good Credit Score Ranges

What Credit Score is Required to Buy a House?

Determining Credit Score to Buy a Car

Ways to Improve Your Credit Score

Joe's Insights on Improving Your Credit

Understanding Different Types of Credit Scores

If you have ever applied for credit, you’ve probably heard of credit scores. Although many people think there is only one universal credit scoring model, there are actually two major types, the FICO model and the Vantage model. Here’s what you need to know about each:

1. FICO Credit Score

   The FICO credit score is the most widely used credit scoring model with eight different FICO models, ranging from FICO 2 to FICO 10. Each model uses a different algorithm to calculate your credit score, meaning that your score can differ depending on which model is used. For instance, a mortgage lender will pull your FICO 5 credit report, while a credit card company will most likely use your FICO 8 credit report. This is because each report places more weight on different factors, such as mortgage history or credit card history.

2. Vantage Credit Score

   The Vantage score, developed by Equifax, Experian, and TransUnion, is a newer credit scoring model that competes with FICO. Although not widely used by lenders at present, many credit monitoring websites provide a free copy of your Vantage score. It is gaining popularity among some sectors, like personal loans and auto lending, and it offers the best scoring model based on today's standards.

While the Vantage score can provide a general idea of your credit score, FICO is currently more widely recognized by lenders, making it a more accurate representation of your lending score. However, many believe that the FICO scoring model is outdated and does not give a clear representation of your credit score. Only time will tell which model will become the industry standard.

Good Credit Score Ranges

Credit scores are given by both FICO and Vantage models and range from 350 to 850. With 350 being the worst score and 850 being the best. To achieve higher scores, it is crucial to understand where you stand when building your scores. Let's take a look at some of the score thresholds you need to know:

620 or below

If your score is 620 or below, it is considered bad credit. This could be due to a history of adverse credit or high-balance credit card accounts. To improve your score, it is advisable to make timely payments and keep ten active revolving credit accounts open. Credit Builder Card or OpenSky Credit Card could be the best options to help you build your credit. With a score in the range of 620, you can qualify for an FHA home mortgage.

640-680

If you have a score between 640-680, it is considered fair for good credit. This means you have an established credit history, but you may have some derogatory marks on your credit, high balances on your credit cards, or newly opened accounts that could drop your score temporarily. In this score range, do not panic if you see temporary score drops due to newly opened accounts.

740+

Any credit score over 740 is considered "super-prime" and will get you the best interest rates for most of the loans. If you have a score over 740, congratulations, you are part of the 20% of the US population with this score. To maintain your good credit score, always pay your accounts on time and maintain your revolving credit card accounts.

What Credit Score is Required to Buy a House?

The credit score required for purchasing a house depends on the type of mortgage loan you aim to qualify for. Government-backed and federally regulated loans generally have similar requirements, but there may still be some differences. There are three common types of mortgage loans available – conventional loans, FHA loans, and VA loans.

1. Conventional Loans:

Conventional loans are the most popular loans and are typically the best savings option, apart from the VA loan. You do not require private mortgage insurance (PMI), which is an additional cost and can hike up your down payment or monthly payment. PMI protects the lender if you default on your loan. Conventional loans have lower down payment requirements and better interest rates than other mortgage loans. A typical credit score requirement for a conventional mortgage loan is 640 with a debt-to-income ratio of no higher than 43%.

2. FHA Loans:

The FHA mortgage loan is intended for people with lower credit scores, usually ranging between 580 and 619. Remember that different loan programs have different requirements, so if you meet the credit score limits, compare lenders to find the best financial option. You'll require to maintain PMI for at least 11 years, which could increase your mortgage cost, something to be aware of while budgeting. This loan offers a higher debt-to-income threshold of up to 50%, which means that if you have a lower income, you can purchase more homes than with a conventional loan. Lastly, the down payment requirements for an FHA loan are as low as 3.5% of the purchase price, allowing you to enter into a mortgage with less money out of pocket than a conventional loan, but you'll have a higher interest rate usually.

3. VA Loan:

With VA loans, there technically is no credit score requirement, but you're required to meet specific pre-qualifying criteria, including checking for previous defaulted loans and any past-due debts owing to the government. You must have served in the US Military for at least 181 days, served 90 continuous days during wartime, or served six years with the National Guard, or your spouse should have been in the military and died during service. VA loans provide the best available interest rates, and they don't demand a down payment. The VA loan is designed to benefit veterans, and usually, no other mortgage loan beats this option.

Determining Credit Score to Buy a Car

When it comes to buying a car, your credit history holds more weight than your credit score in determining if you qualify for a loan. Although having a higher credit score is important, it plays a less significant role in the interest rate that you will be offered. Lenders will scrutinize your credit history to assess the risk involved in lending to you. For example, if you have a record of late payments or repossession, it will be harder to obtain a loan than someone with a good credit record. Some special finance lenders may be more lenient, but they will impose specific criteria, such as a higher down payment or additional dealership fees, as part of the approval process. Moreover, having some equity or a down payment will give you more leverage when buying a car on credit.

Credit Score Range for a New Car

While there is no exact credit score required for approval, having a score of over 680 is ideal. A score below this may result in a higher interest rate for the borrower, as they could be considered high risk by the lender. The interest rate varies depending on the credit score; the lower the score, the higher the interest rate. Using data provided by lenders, someone with a credit score of 720 and above will pay, on average, $5,500 in interest on a loan, while someone with a score of 580 or above will pay, on average, $15,300 in interest on a loan. Therefore, having a higher credit score can positively impact the interest rate and overall credit score.

Ways to Improve Your Credit Score

Improving your credit score can be a lengthy process that requires patience and discipline. However, there are simple steps you can take to increase your credit score, such as:

1. Open 3-5 revolving credit accounts:

Revolving credit is an excellent option for improving your credit score. If you have limited credit or are working to rebuild your credit, obtaining a large loan can be challenging. Instead, opening a secured credit card like Open Sky or Credit Builder Card is recommended. Revolving credit accounts for 30-35% of your credit score, and making small, timely payments is crucial.

2. Request a Credit Limit Increase:

By requesting a credit limit increase, you can increase your overall credit limits and lower your credit utilization percentage. Most credit card companies will allow you to request an increase online or through a call, and excellent payment history is necessary before approval.

3. Pay Down Your Balances:

It is essential to keep your balance low and close to zero. Use your credit cards for small purchases and leave a $1-5 balance on your card when paying bills. If you have high balances, create a plan to pay them off monthly, and limit your usage in the future. High credit card balances can hurt your credit score due to a high credit utilization percentage and accumulating interest payments.

Improving your credit score is not an overnight process, but taking these steps can aid in raising your credit score over time.

Joe's Insights on Improving Your Credit

At some point, we have all experienced less than satisfactory credit. However, it's important to take your current credit standing seriously and make an effort to improve it. Improving your credit requires patience and dedication; but with hard work, you can expect a significant increase in your credit score. People with bad credit often feel stuck in a perpetual cycle of financial insecurity, thinking good credit is unattainable. But those who are committed to improving their credit and changing their spending habits will eventually see results. Start by creating a budget and identifying and addressing any negative spending patterns you have; this small step can make a big difference in your credit score. If you need help repairing your credit, visit www.asapcreditrepairusa.com for guidance and assistance. This article can offer new insights to better understand credit.

Key Points:

• Taking your credit seriously can lead to significant improvements.
• Don't get stuck in a cycle of bad credit, take action to improve it.
• Improving your credit takes patience and dedication.
• Start by creating a budget and fixing negative spending habits.
• Visit www.asapcreditrepairusa.com for credit repair assistance.