It may surprise you to learn that there are actually 30 distinct levels of credit scores. Despite this fact, many people fail to realize it and can become lost in a sea of conflicting information when attempting to determine what qualifies as a "good" score. Sorting through the different resources available on Google can be a confusing and misleading experience, often leading to dead ends rather than solutions. My name is Joe Mahlow, and I have dedicated over 15 years of my professional career to the financial literacy and credit repair industries. I strive to provide unbiased and honest advice on topics just like this one: credit scores. With a track record of having assisted more than 20,000 clients in elevating their credit scores, I am confident that I can provide you with the information needed to do the same. So, without further ado, let's jump right in.

Contents:

Different credit scores: What you need to know

Determining what is Considered a Good Credit Score

Determining an Ideal Credit Score for Home Purchase

Determining Your Credit Score for a Car Purchase

Tips for Improving Your Credit Score

Insights from Joe

Different credit scores: What you need to know

Understanding the different credit scoring models is essential when it comes to maintaining a healthy credit score. There are two main credit scoring models - FICO and Vantage, each with its own unique features that affect your credit score.

FICO Credit Score

FICO has eight different models ranging from FICO 2 to FICO 10. Every FICO model generates a different credit score depending on your credit report. However, this is not as confusing as it seems. Lenders use different FICO scores based on the type of loan you are applying for. For instance, a mortgage lender will use FICO 5, while a credit card company will use FICO 8 as their benchmark.

Why the different scores?

Each credit report has a different weight, meaning certain factors have a more significant impact on your credit score than others. For example, a FICO 5 mortgage report heavily weighs your previous mortgage history while a FICO 8 credit card report weighs your previous credit card history the most.

Vantage Credit Score

Developed by the three major credit reporting agencies in competition with FICO, the Vantage Scoring model is a new way to score credit, gaining popularity in some sectors, including personal loans and auto lending. While FICO currently dominates the lending sector, Vantage scores will likely grow in popularity over time.

Is the Vantage Score accurate?

The Vantage Score is generally accurate but has limited use in lending purposes since it's not as widely recognized as the FICO model. This means that Vantage's accuracy can vary depending on the context of your credit application. However, it can give you an overall idea of your credit score, which is helpful when looking for a loan.

As lenders continue to see the advantages of the Vantage scoring model, it may become a standard for credit scoring in the future. Credit reporting agencies are data collectors, and they provide the best available scoring data. Despite FICO's dominance, more people are starting to see how outdated it is. Remember to use www.myfico.com to check your scores for a specific model.

Determining what is Considered a Good Credit Score

Credit scores using the FICO and Vantage scoring models have a range of 350 to 850, with 850 being the highest score and a 350 considered the lowest. During your credit score journey, it is crucial to understand where you stand in relation to your goals of achieving the highest scores. Here are some important score thresholds to consider:

1. 620 or below

Having a credit score below 620 is considered bad credit. If you fall below this threshold, you're likely to have bad credit history or high-balance credit card accounts, or you may have no credit cards at all. To improve your credit score, pay your bills on time and have ten active revolving credit accounts. Using secured credit cards, like the Credit Builder Card or OpenSky Credit Card, can also help build your credit score. Once you reach a 620 credit score rating, you'll start qualifying for an FHA home mortgage.

2. 640-680

Having a credit score between 640 and 680 is regarded as good, fair credit. It means you have established credit, but derogatory marks or accounts on your credit may exist, and you may have some high balances on your credit cards, which you need to pay down. Newly opened accounts are also a common cause of temporary drops in credit scores. So, if you have recently opened a new account and fell in this range, there's no need to panic because your scores will recover over time.

3. 740+

A superb credit score is any score above 740 and is part of the 20% of the US population. You deserve congratulations if you have a score in this range as it guarantees you the best interest rates for practically all loans. To keep and improve your score, continue paying your bills on time and keep up with revolving cards' payments.

Determining an Ideal Credit Score for Home Purchase

The answer to what credit score you need to buy a house varies based on the mortgage loan type you choose. Most mortgage loans have similar requirements and guidelines because of federal regulations and government backing. Generally, the three most popular mortgage loans are Conventional loans, FHA loans, and VA loans.

1. Conventional Loans:

   Conventional loans are preferred by many and are the most popular loans. This option offers the best "savings" loan outside of VA loans. A borrower will not need private mortgage insurance (PMI), which can be an added cost that can increase their downpayment or monthly payment. PMI safeguards the lender in case the borrower stops making payments on their loan. Conventional loans generally have lower downpayment requirements and better interest rates than others. A typical credit score requirement for this mortgage is 640, and the debt-to-debt ratio should not be higher than 43%.

2. FHA Loans:

   The FHA mortgage loan caters to lower credit scores, usually between 580 and 619. Loan programs differ, so if you are within the credit score limits, it's essential to shop around for different lenders that will provide the best financial option. Borrowers will be required to maintain PMI for at least eleven years, which may lead to added costs if they're on a budget. This mortgage option typically has a higher debt-to-income limit of up to 50%, allowing borrowers to purchase more homes than with a conventional loan, assuming they have a lower income. The downpayment requirements on an FHA loan are usually as low as 3.5% of the purchase, making it a viable option if you're strapped for cash.

3. VA Loan:

   There isn't a credit score requirement for VA loans. However, having any previous defaulted loans and outstanding government-owned debts may hinder the pre-qualification stage. Eligibility is based on a veteran's service in the United States military for at least 181 days, serving 90 consecutive days during wartime, six years of service with the National Guard, or if their spouse lost their life during active duty. The VA loan option usually has the best interest rates available and doesn't require a down payment. This type of mortgage loan is perfect for veterans as it is a way to give back to those who served the country.

Determining Your Credit Score for a Car Purchase

When considering purchasing a car, it's important to note that your credit history, not just your credit score, plays a significant role in obtaining loan approval. While a high credit score is advantageous, lenders closely examine your credit history, such as previous late payments or repossessions, to determine loan approval and interest rate. Special finance lenders may qualify nearly any applicant for a car loan, but approval comes with higher down payments and additional dealer fees. A down payment will also provide leverage when securing a car loan. While there is no definitive approval credit score, a credit score above 680 is ideal, and scores lower than 680 may carry a higher interest rate due to increased lending risk. The interest rate examples illustrate that as credit scores decrease, interest rates and associated costs increase. It's clear that a credit score above 720 carries an average interest of $5,500 compared to the average interest of $15,300 for scores less than 580.

Tips for Improving Your Credit Score

Improving your credit score is a process that requires patience and dedication. There are several steps you can take right now to help raise your credit score with minimal effort. Here are some things you can do to improve your credit score:

1. Open 3-5 revolving credit accounts:

Revolving credit, such as credit cards, is an effective tool in improving your credit scores. For those with limited credit or trying to rebuild their credit, it can be difficult to obtain a large loan. Opening a secured credit card, such as Open Sky or Credit Builder Card, that focuses more on your ability to pay on time, can increase your chances of approval. Revolving credit makes up 30-35% of your overall credit score and is the best option to help build credit scores quickly. Make sure to pay your balance on time and keep it at $5-10 with small purchases.

2. Raise your credit limits:

Requesting a credit limit increase lowers your credit utilization percentage and increases your overall credit limits. Call your credit card company and request a “Credit Limit Increase”. They will often require you to fill out some information, including your current income, and typically require 7-15 months of excellent payment history.

3. Pay down your balances:

Keeping your balance low and close to zero is crucial. Use your credit cards for small purchases and leave a $1-5 balance when paying your bill each month. If you have high balances, make a game plan to take a percentage of your paycheck each month to pay off the credit card and limit your usage. High rates can lead to most of your payments going towards interest and not principal.

Insights from Joe

We've all been there with poor credit at some point in our lives. However, if you're determined to improve your credit situation and willing to put in the effort, you can witness significant progress in your credit score sooner than you think. Unfortunately, many consumers with bad credit tend to believe that they will always have credit issues and write off the possibility of reclaiming a good credit standing. Nevertheless, it takes devotion and time to rebuild your credit, and those who prioritize their credit status and spending habits are set to achieve success. Begin by creating a budget plan and correcting any unfavorable spending tendencies as these actions can have a direct impact on your credit score. Additionally, this article aims to enlighten you on credit matters. If you need assistance with improving your credit score or need credit repair services, please don't hesitate to contact our office today at www.asapcreditrepairusa.com.