It may come as a surprise, but there are actually 30 different levels of credit scores! Many individuals who search for the top credit score are confronted with numerous and conflicting search results from search engines like Google. Consequently, they may become bewildered or head down an unfortunate path. As someone with over fifteen years of experience in financial literacy and credit repair, my mission is to provide unfiltered advice covering a wide range of topics, including this one: credit scores. To date, I have worked with more than twenty thousand clients, helping them improve their credit scores. I am confident that I can offer the information and guidance required to help you do the same! Let's delve deeper into this topic.

Contents:

Credit Score Models: Understanding FICO and Vantage

What Constitutes a Good Credit Score

Credit Score Required for a Home Loan

Determining a Good Credit Score for Auto Loans

Tips for Improving Your Credit Score

Ideas by Joe

Credit Score Models: Understanding FICO and Vantage

When it comes to credit scores, there are two primary models: FICO and Vantage. It's essential to comprehend both models because it affects how your score is calculated.

FICO Credit Score

The FICO scoring model dominates the lending sector and has eight different FICO models, ranging from FICO 2 to FICO 10. Each model weighs different components of your credit report, producing a distinct score. For instance, if you apply for a mortgage, the lender will most likely pull your FICO 5 report. On the other hand, a credit card issuer will likely pull your FICO 8 report.

Why does each FICO model have different scores?

Each credit report has a different weight, meaning certain factors will significantly affect your score while others will not. For example, your FICO 5 mortgage score considers past mortgage history, while your FICO 8 score prioritizes your credit card history. A lender's primary emphasis determines which FICO model they will use.

Vantage Credit Score

The Vantage scoring model is a newer model developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion) to rival FICO. Credit reporting websites offer free credit reports based on the Vantage model. Although not as widely used in lending, it is gaining more popularity in personal loans and auto lending.

Is the Vantage Score accurate?

The Vantage model is accurate but not as recognized as FICO in lending. Thus it may not reflect your actual loan approval score. However, it can give a general idea of your FICO score, which may be helpful in understanding your overall credit standing. It may become more widely used in the future due to its ability to provide the best scoring models based on today's standards, while the FICO model may seem outdated. Keep in mind that credit reporting agencies have the upper hand in providing the best scoring data based on the information they collect.

To get a better visual representation of your different FICO scores, sign up for an account on www.myfico.com.

What Constitutes a Good Credit Score

Both FICO and Vantage models rank credit score on a scale of 350 to 850, with 850 being the pinnacle of perfection, while 350 being the bottom of the barrel. It is crucial to understand where you stand in your credit score journey and set goals to achieve a high score. Here are some vital credit score thresholds to consider:

1. 620 or below:

A score of 620 or below is considered poor credit. If your score falls in this range, chances are you either have had a bad credit history, high balance credit cards, or no credit cards in general. To bump up your credit score, ensure timely payments, maintain ten active revolving credit accounts, and consider getting a Credit Builder Card or OpenSky Credit Card. Once you reach the 620 credit score range, you can qualify for an FHA home mortgage.

2. 640-680:

If your credit score falls within the range of 640 to 680, it is considered fair for good credit. Scores in this range indicate that you have established credit, but there may be some derogatory marks or accounts on your credit report, resulting in high balances on your credit cards, which you will have to pay down. Moreover, a newly opened account can temporarily cause a slight drop in your scores. If you fall within this range and recently opened a new account, there is no need to worry since this dip is temporary, and your scores will soon return.

3. 740+:

A credit score of 740 or above is considered super-prime and grants you access to the best interest rates across most loans. Congratulations if your scores are over 740 because you belong to the 20% of the US population with such a score. To maintain your high scores, ensure you always pay your accounts on time and keep your revolving credit card accounts paid. Congratulations, you are on the right path!

Credit Score Required for a Home Loan

When it comes to the required credit score for buying a house, it largely depends on the type of mortgage loan you wish to qualify for. There are different requirements and guidelines for various mortgage loans, due to federal regulations and government support. The three most common mortgage loans available are conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular choice for homebuyers and typically the best option outside of VA loans in terms of savings. These loans do not typically require private mortgage insurance (PMI), which can be an added cost to the downpayment or monthly payments. The credit score requirement for conventional loans is typically 640 with a debt-to-debt ratio not higher than 43%. You will enjoy lower downpayment requirements and better interest rates than other loans.

FHA Loans

FHA mortgage loans have credit score requirements between 580 and 619, making them a great choice for those with lower credit scores. Nonetheless, all loan programs have different criteria, so it is advisable to shop around to find the best financial package for you. You will need to maintain PMI for at least 11 years with FHA loans, which can increase your monthly mortgage payments. With the higher debt-to-income limit of up to 50%, you can buy more houses than with a conventional loan if you have a lower income. Lastly, the downpayment requirement is only 3.5% of the purchase, making it a great choice if you have limited funds. However, the interest rate is typically higher than other types of loans.

VA Loans

For the VA loan program, there isn't necessarily a required credit score; still, the lender will look for any previously defaulted loans and any government past-due debts when pre-qualifying you. You must be a United States Military member for at least 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or be the spouse of a military member who died during active duty. VA loans usually come with the best interest rates, and you typically do not need a downpayment. This loan seems like the perfect way for us to show our appreciation for veterans' courageous efforts.

Determining a Good Credit Score for Auto Loans

When seeking to purchase a vehicle, your credit history carries more weight than your actual credit score. Although a higher score is a beneficial factor, it does not play a primary role in the interest rate you qualify for. Lenders evaluate your past and present credit behaviors to establish the level of risk involved in giving you a loan. If you have a poor track record of loan repayment, such as previous late payments or vehicle repossessions, it will be more challenging to obtain approval for a loan than an individual with a clean credit history. In the event of seeking a car loan with bad credit, you may still qualify for subprime finance options; however, the dealership may request additional requirements such as a higher down payment, charges or fees to reduce the risk of defaulting on the loan. If you want to attain the best position when applying for auto loans, you should have equity or a down payment.

Credit Score Range to Purchase a New Vehicle

There is no specific credit score to guarantee approval. The credit score is one of many aspects assessed, as outlined in the previous section. Nevertheless, having a credit score of 680 or higher is desirable, as anything below that would raise the interest rate charged to reflect the extent of risk. The following example reveals the impact of credit scores on interest rates:

Interest Rates by Credit Score:

1. Above 720 Credit score: $5,500 interest on average for the car loan.
2. Above 680 Credit score: $6,600 interest on average for the car loan.
3. Above 650 Credit score: $8,100 interest on average for the car loan.
4. Above 615 Credit score: $10,200 interest on average for the car loan.
5. Above 580 Credit score: $13,900 interest on average for the car loan.
6. Credit score of 580 or above: $15,300 interest on average for the car loan.

Based on these figures, it is evident that your credit score is a decisive factor in determining the interest rate and overall amount you pay, causing an impact on your credit score.

Tips for Improving Your Credit Score:

Improving your credit score is a process that requires time and patience. While there is no overnight fix, there are some things you can do now to give your credit score a boost. Here are a few tips to get started:

1. Open 3-5 revolving credit accounts:

Revolving credit, such as credit cards, can help improve your credit score. If you have limited credit history or are rebuilding your credit, it can be challenging to get approval for a large loan. A secured credit card like Open Sky or Credit Builder Card can be a good option to start. Revolving credit makes up 30-35% of your overall credit score, so make sure to pay your balance on time and keep it at $5-10 each time you make a payment.

2. Raise your limits:

Requesting a credit limit increase for your active revolving credit accounts can help lower your credit utilization percentage and increase your overall credit limit. Contact your credit card company and request a credit limit increase. They will evaluate your payment history and income before deciding.

3. Pay down your balances:

Keeping your balance low and paying off your credit cards each month is crucial for a good credit score. Create a plan to pay down any high balances if you can't pay them off immediately. Limit your credit card usage as much as possible, and try to keep a $1-5 balance on your credit cards.

Remember that building good credit takes time and patience. Stick to your plan and be consistent with your payments to improve your credit score over time.

Ideas by Joe

At some point, most of us have experienced having less than impressive credit. However, taking the necessary steps to work on your credit will yield significant improvements to your credit score in a short period. Unfortunately, many people who struggle with bad credit resign themselves to a never-ending cycle that seems impossible to break. Although achieving a great credit score is hard work, prioritizing your credit and making smarter spending choices can make a significant difference. To get started, it is essential to create a budget and focus on eliminating any bad spending habits that may negatively impact your credit score. If you want to learn more about how credit works, this article is for you. And if you need help fixing and improving your credit score, don't hesitate to contact my office at www.asapcreditrepairusa.com.

Key points:

1. Taking steps to improve your credit will result in visible improvements quickly.
2. Prioritizing your credit and smart spending habits is essential in achieving a great credit score.
3. Creating a budget and eliminating negative spending habits can have a positive impact on your credit rating.
4. Contact Joe's office at www.asapcreditrepairusa.com for expert guidance and help with credit repair.