It's surprising how many people are unaware of the 30 different levels of credit scores that exist. Searching for the best credit score on Google can yield a confusing and sometimes misleading array of answers. As someone who has been in the financial literacy and credit repair industry for over fifteen years, I know how challenging it can be to navigate this complex topic. My name is Joe Mahlow, and my aim is to provide you with practical advice on various finance-related matters, starting with credit scores. Throughout my career, I've helped more than twenty thousand clients improve their credit scores, and I'm here to do the same for you. So let's dive in and get started!

Contents:

Different Types of Credit Scores

Understanding Credit Scores: A Guide to Good Credit

Good Credit Score Needed for Buying a House

Determining a Suitable Credit Score for Purchasing a Car

What are some ways to increase your credit score?

Insights by Joe on Credit Improvement

Different Types of Credit Scores

Credit scores are essential when it comes to determining your creditworthiness, but not all credit scores are created equal. There are two main credit scoring models that you should be familiar with - the FICO credit scoring model and the Vantage credit scoring model. Although both models are crucial, they differ significantly in how they calculate your credit score.

FICO Credit Score

The FICO credit scoring model is the most widely used model in the credit industry, and it consists of eight different models - FICO 2 to FICO 10. Depending on your credit report, you may receive a different credit score for each of these models. This may seem perplexing, but there is a reason behind it.

Depending on the type of lender you apply for credit with, they may request a different FICO report. For instance, if you are applying for a mortgage, your lender will most likely request your FICO 5 credit report. If you apply for a credit card, your lender could request your FICO 8 credit report.

Why are there so many FICO scores?

Each credit report has different "weight" factors, meaning that the critical factors to the lender will have a more significant impact on your credit score than the less important ones. The FICO 5 mortgage report, for example, heavily weighs your previous mortgage history. If you have a great payment history on a previous mortgage, it will weigh more in your favor score-wise compared to no history or negative history. This applies to all FICO scoring models. Credit card companies mostly use the FICO 8 report, and your previous credit card history will impact this score the most. Auto lenders generally pull FICO-2 reports, and your scores will weigh heavily on your previous auto history.

You can visit www.myfico.com to sign up for an account to see all your different credit scores.

Vantage Credit Score

The Vantage Score scoring model was developed by Equifax, Experian, and TransUnion as a competitor to the FICO scoring model. Vantage is a new scoring model compared to FICO, which has been used since the seventies. Currently, Vantage is widely used by credit monitoring websites in the United States to provide a free copy of your credit reports. Although FICO is the most recognized scoring model, Vantage is gaining popularity in certain sectors, such as personal loans and auto lending.

Is the Vantage Score accurate?

The accuracy of the Vantage Score depends on the context within the question. Since the Vantage score is not widely used for lending purposes, it might not be accurate when it comes to your actual lending score. A credit score is only as accurate as your ability to obtain a loan, and since FICO is the most recognized scoring model, Vantage's accuracy can vary. Instead, use your Vantage score to have a general idea of where your overall scores are. Since it's hard to know your FICO score without paying for it or having a lender pull your credit report, the Vantage scoring model is an excellent tool.

In the next 5–10 years, Vantage will probably be widely used by lenders across the country since it provides the best scoring models based on today's standards. The FICO scoring model may need an update since it doesn't always give the user a clear representation of their credit scores. Let's not forget that credit reporting agencies are the largest data collection agencies outside of social media companies. If they have the data, they have the upper hand in providing the best scoring data.

Understanding Credit Scores: A Guide to Good Credit

Credit scores are determined by both FICO and Vantage models, which range from 350 to 850. A credit score of 350 is the worst, while 850 is the best score you can have. By having a clear understanding of your standing, you can build a good credit score. Here are some vital score thresholds to watch out for:

620 or below - a bad credit score

If you're below this threshold, you may have adverse credit history, high-balance credit card accounts, or no credit cards at all. The best way to improve your score is by making timely payments and having ten active revolving credit accounts open. You can use credit builder cards or OpenSky credit cards to help you build your credit. Once your score reaches 620, you can start qualifying for an FHA home mortgage.

640-680 - a fair for good credit score

A score within this range means you have established credit, but you may have derogatory marks or accounts on your credit. Paying down high balances on your credit cards and avoiding opening new accounts can help increase your score.

740+ - a "super-prime" score

Any credit score over 740 is considered the best and provides the best interest rates for loans. Congratulations if you fall within this category of the 20% of the US population. Keep paying your accounts on time and keeping your revolving credit card accounts paid to maintain your score.

Good Credit Score Needed for Buying a House

To determine a good credit score required for buying a house, you need to consider the type of mortgage loan you are eligible for. Mortgage requirements for most loans are similar but can have some differences, based on federal regulation and government involvement. The three most common types of mortgage loans are conventional loans, FHA loans, and VA loans.

1. Conventional Loans:

Conventional loans are the most popular and offer the best savings option next to VA loans. These loans do not require you to maintain private mortgage insurance (PMI), which can add to your downpayment or monthly payment cost. Conventional loans typically have lower downpayment requirements and better interest rates than other mortgage loans. You will need a credit score of 640 and a debt-to-debt ratio of no higher than 43% for conventional loans.

2. FHA Loan:

FHA mortgage loan is suitable for lower credit scores between 580 and 619. You must look for different lenders with the best financial options if you are within the credit score limit. You will have to keep PMI for at least 11 years, which can increase your mortgage payment if you choose an FHA loan. The debt-to-income limits can go up to 50% with a downpayment requirement as low as 3.5%.

3. VA Loan:

VA loans do not have a credit score requirement but look for previous defaulted loans and government-owed past-due debts when pre-qualifying you. To be eligible for VA loans, you should have served in the US Military for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or have a spouse that lost their lives during active duty. VA loans usually have the best interest rates and do not require a down payment, making it an ideal option for veterans.

Determining a Suitable Credit Score for Purchasing a Car

When purchasing a car, having a favorable credit history is the key factor in determining loan eligibility, rather than solely relying on your credit score. While having a higher credit score is important, it plays a minor role in determining the interest rate you qualify for. Prior and present credit histories are analyzed to evaluate the risk associated with extending credit. Someone with a poor credit history may face challenges in receiving approval for a loan. However, the worst credit or special finance lenders may qualify anyone for a loan with specific criteria such as higher down payments and additional fees to the dealer. Additionally, the dealership may charge a fee to reduce the risk of lending to someone with bad credit. Having equity or a down payment can also increase leverage when purchasing a vehicle on credit.

Ideal Credit Score Range for a New Vehicle

There is no specific credit score that guarantees loan approval. However, a credit score over 680 is ideal as scores under this range may increase the interest rate due to higher associated risk. The interest rate varies according to credit scores. For example, a borrower with a credit score of 720 or above may pay an average interest of $5,500 on a loan, whereas someone with a credit score of 580 or above may pay an average interest of $15,300 on the same loan. Therefore, it stands to reason that the higher the credit score, the lower the interest rate and the less interest you pay, ultimately affecting your overall credit score.

What are some ways to increase your credit score?

Improving your credit score takes time, and it's essential to be patient. It's important to avoid making irrational or bad decisions that can make your financial situation worse. Here are some steps you can take to improve your credit score:

1. Open 3-5 revolving credit accounts (credit cards)

   Revolving credit is an excellent option for maximizing your credit score quickly. If you have limited credit history or are looking to rebuild your credit, obtaining a large loan may be difficult. Opening a secured credit card like Open Sky or Credit Builder Card may be a good option as they focus more on your ability to pay on time. Revolving credit makes up 30-35% of your overall credit score, so using your credit cards for small purchases like gas or groceries and paying off the balances on time can show positive changes in your credit score within 2-4 months.

2. Request a credit limit increase

   Having an active and updated credit card can help you request a credit limit increase, which can help increase your overall credit limit and lower your credit utilization percentage. Increasing credit limits can help keep your utilization percentage below 30% and improve your credit score.

3. Pay down your balances

   Keeping your balances low or close to zero is crucial to improve your credit score. Use credit cards for small purchases and leave a balance of $1-5 when paying your bills. Paying down high balances requires a financial plan and game plan by taking an "x" percentage out of your paycheck each month to pay credit cards down. Limiting your credit card usage, especially if you can't pay them off, will prevent your financial situation from getting worse and stop you from paying too much interest.

Insights by Joe on Credit Improvement

Many of us may have faced difficulties due to poor credit at some point. However, taking proactive measures and prioritizing credit improvement can prove to be beneficial. Oftentimes, individuals with a negative credit history assume that creating a better credit score is an impossible feat, resulting in a never-ending cycle of bad credit. Nevertheless, through dedication and effort towards establishing healthy spending habits, significant improvements can be observed in a relatively short time. A great starting point is creating a budget and addressing any unfavorable spending practices. These changes will directly affect your credit score. This article aims to provide insight into managing credit. If you require assistance with improving your credit score or repairing your credit history, feel free to contact our office today at www.asapcreditrepairusa.com.