It is worth noting that there is not just one credit score, but many different levels of credit scores that can vary depending on the scoring model used. Despite this, many people are not aware of the diversity that exists when searching for information on credit scores online. With so much information out there, it can be easy to become confused or misinformed, which is why I am here to share my expertise. My name is Sarah Thompson, and I have spent more than a decade working in financial literacy and credit repair. My ultimate goal is to provide you with unbiased advice on a variety of subjects, such as credit scores. Over the years, I have helped thousands of clients improve their credit scores, and I would like to do the same for you. So, let's dive in.

Contents:

Different Types of Credit Scores: An Overview

Understanding Credit Scores: What is Considered as Good Credit?

What Credit Score Do You Need to Purchase a House?

Determining a Good Credit Score for Buying a Car

How to Improve Your Credit Score?

Tips from Joe on Improving Your Credit Score

Different Types of Credit Scores: An Overview

Understanding credit scores is crucial for anyone who wants to maintain good financial health. When it comes to credit scoring models, there are two main ones to know: the FICO model and the Vantage model. Both models have their unique way of calculating credit scores, which can differ substantially. Here is a breakdown of the two models and what you need to know:

FICO Credit Score

The FICO credit scoring model is the most popular and widely used one out there. It has eight different models, ranging from FICO 2 to FICO 10, and each model produces a different credit score depending on your credit report. The reason for having different models is that each credit report puts a different "weight" on various factors, which determine a score. For instance, a FICO 5 mortgage report will heavily consider payment history on previous mortgages, whereas a FICO 8 credit card report will focus primarily on your credit card history. Auto lenders usually pull FICO-2 reports, which take into account previous auto history. Knowing which FICO model your lender will use is essential as this can impact approval chances.

Vantage Credit Score

The Vantage Score is a newer credit scoring model than the FICO model and was created by the three major credit reporting agencies: Equifax, Experian, and TransUnion. Although it’s not yet widely used for lending purposes, the Vantage Score model is gaining popularity in sectors such as personal loans and auto lending. Credit monitoring websites often use it to offer free credit reports. The Vantage Score is not as accurate as a FICO score for lending purposes, but it still offers a good “general idea” of your credit score. It can help give you an indication of your creditworthiness, assuming accurate reporting.

Which is Better: FICO or Vantage?

In the end, there is no clear winner when it comes to which model is better, as both have their unique strengths and weaknesses. However, since FICO is the most used by lenders, it is still the most important to focus on. If you want to see your different FICO scores, you can sign up for an account on www.myfico.com. As for the Vantage Score, it offers a good way of tracking your credit in general, so it is definitely worth keeping an eye on it. As credit reporting agencies continue to collect vast amounts of data, they will pull ahead in providing the best scoring data, and the Vantage scoring model may become the new standard.

Understanding Credit Scores: What is Considered as Good Credit?

Credit scores range from 350 to 850, with 850 as the best and 350 as the worst. Knowing score thresholds can help you on your journey to establishing and building your credit. Consider the following:

1. 620 or below:

• Considered bad credit with a history of adverse credit or high-balance credit card accounts, or lack of credit.
• To improve the scores, make timely payments and acquire ten active revolving credit accounts. Consider using secure credit cards like Credit Builder Card or OpenSky Credit Card.
• Once you hit the 620 credit score range, you can qualify for an FHA home mortgage.

2. 640-680:

• Credited as fair for good credit score.
• Scores in this range suggest that you have established credit with some derogatory marks or accounts on your credit, and high balances that require payment.
• Temporary drops in credit scores could occur if you recently opened a new account.

3. 740+:

• Scores exceeding 740 are considered "super-prime," providing the best interest rates for most loans.
• Only 20% of the US population has this score.
• Continue making timely payments and keep your revolving credit card accounts paid.

What Credit Score Do You Need to Purchase a House?

The answer to this inquiry relies upon the sort of home loan you are looking for as requirements and directives vary due to federal regulations and government backing. The requirements and guidelines for most mortgage loans, including conventional loans, FHA loans, and VA loans, are somewhat similar and different at the same time.

Conventional Loans

Conventional loans are the most common and suitable "savings" loan option after the VA loan. A conventional loan does not entail you to maintain private mortgage insurance (PMI), which is an added cost that raises your down payment or monthly payments. PMI covers the lender if you stop making payments on your loan. Conventional loans usually require lower down payment and have better interest rates than other mortgage loans. The typical credit score requirement for a conventional mortgage loan is 640 with a debt-to-debt ratio that is no more than 43%.

FHA Loan

The FHA mortgage loan is for those with lower credit scores typically from 580 to 619. Bear in mind that all loan programs differ, so locate various loan providers and choose the best financial option, given your credit score. With FHA loans, you must maintain PMI for at least 11 years, which increases your mortgage's cost and is worth considering, particularly if you're on a budget. This loan has a more lenient debt-to-income limit of up to 50%, allowing low-income earners to purchase more homes than with a conventional loan. Lastly, FHA loans' down payment requirements are as low as 3.5% of the purchase, which means you can get into a loan with less money out of pocket than a conventional loan, although you will have a higher interest rate.

VA Loan

There is, technically, no credit score requirement with the VA loan, but pre-qualification involves inspecting previously defaulted loans and any government-owed past-due debts. You must have served in the United States military for at least 181 days, served 90 consecutive days during wartime, or six years with the National Guard, or if your spouse was in the military and lost their lives while on active duty. The VA loan usually offers the best interest rates available, and they don't usually require a down payment. The VA loan is a perfect way to pay back our veterans.

Determining a Good Credit Score for Buying a Car

When it comes to purchasing a vehicle, it's not just your credit score that is important, but your credit history as well. While a higher credit score is helpful, it plays a lesser role in the interest rate that you qualify for. Creditors do not solely rely on your credit score, but also evaluate your current and past credit histories when determining your creditworthiness. A person who has defaulted on previous auto loans or has had a repossession will face greater challenges in obtaining approval compared to someone with a clear credit history. Nevertheless, lending institutions that cater to subprime borrowers can approve almost anyone for a car loan, but with certain conditions such as higher down payment and fees to offset the added risk of these borrowers defaulting on the loan. This also applies to dealerships, where they select vehicles with higher markups to recoup fees. Last but not least, equity or a down payment can give you more leverage when purchasing a vehicle on credit.

Credit Score Requirements for a New Vehicle

Although there is no specific credit score that guarantees approval, typically a credit score above 680 is adequate. Having a credit score below this range can result in higher interest rates due to the perceived risk you pose to the lender. Higher credit scores will result in lower interest rates, as shown by the following examples:

1. If you have a credit score of 720 or higher, you will pay an average of $5,500 in interest on a car loan.

2. If you have a score of 680 or higher, you will pay an average of $6,600 in interest on a car loan.

3. If you have a score of 650 or higher, you will pay an average of $8,100 in interest on a car loan.

4. If you have a score of 615 or higher, you will pay an average of $10,200 in interest on a car loan.

5. If you have a score of 580 or higher, you will pay an average of $13,900 in interest on a car loan.

6. If you have a score of 580 or lower, you can expect to pay an average of $15,300 in interest on a car loan.

These numbers demonstrate that a higher credit score can mean paying less interest, which can positively influence your overall credit score.

How to Improve Your Credit Score?

Improving your credit score requires patience and consistent effort with the right strategy. Focusing on certain aspects of your credit can help you take control of your financial future. Here are some actions that you can take right away to boost your credit score:

1. Open 3-5 Revolving Credit Accounts:

Building your credit score by obtaining a loan is not always feasible. Instead, applying for a secure credit card that does not solely rely on your credit score, such as Open Sky or Credit Builder Card, is a great option. Revolving credit comprises 30-35% of your overall credit score and is the best option for building credit quickly. Ensure the balance is maintained at $5-10 by using the card for small purchases like gas or groceries, and pay off your balance on time.

2. Raise Your Limits:

Requesting an increase in credit card limits can lower your credit utilization percentage. Contact your credit card company and request a "Credit Limit Increase." The process will be reviewed by their credit team, and they will usually want to see about 7-15 months of excellent payment history.

3. Pay down Your Balances:

Keeping your balance low and close to zero is essential to improve your credit score. Limit your credit card usage and leave a small outstanding balance of $1-5 at the end of each payment cycle. If you have high balances, create a repayment plan using a percentage of your paycheck each month to pay off the balance. Avoid running the balance back up as the rates on a credit card are usually high and can negatively impact your credit score.

Tips from Joe on Improving Your Credit Score

We've all experienced less-than-stellar credit at some point. However, taking your current credit situation seriously and dedicating time and effort to improving it can lead to significant improvements in your credit score in a short amount of time. Many individuals with poor credit feel trapped in a cycle of financial struggle, believing that rebuilding their credit is impossible. But cultivating a great credit score requires persistent effort and a focus on responsible spending habits. One way to start is by creating a budget and working to eliminate any negative spending behaviors, which will positively impact your credit score. If you need guidance or assistance with credit repair, don't hesitate to contact my office at www.asapcreditrepairusa.com. This article aims to provide insights into credit improvement.

Key Takeaways:

1. Taking your current credit situation seriously and putting in the effort can lead to significant improvements to your credit score.
2. Rebuilding credit requires persistent effort and a focus on responsible spending habits.
3. Creating a budget and eliminating negative spending behaviors can positively impact your credit score.
4. If you need guidance and help with improving your credit score, contact Joe's office at www.asapcreditrepairusa.com.