Are you aware that there are actually 30 levels of credit scores? It's surprising how misunderstood this topic can be, with many people turning to Google in search of the best credit score only to be presented with a barrage of conflicting information. Unfortunately, much of what's available online can be not only confusing but also misleading, taking you down the wrong path. My name is Joe Mahlow and I've spent the last fifteen years in financial literacy and credit repair. My aim is to provide you with unfiltered advice on a range of topics including, like this one, credit scores. Over the years, I've successfully helped more than 20,000 clients improve their credit scores, and my goal today is to give you enough information to do the same. So, let's dive in!

Contents:

Various Types of Credit Scores

Understanding Credit Scores

What Credit Score Do You Need to Qualify for a Mortgage?

Determining a Good Credit Score for Buying a Car

Tips for Improving Your Credit Score

Joe's Advice on Credit Improvement

Various Types of Credit Scores

Credit scores are critical when it comes to getting approved for credit, such as a loan or a credit card. There are two main types of credit scoring models to be aware of: the FICO model and the Vantage model. It's important to understand them and their differences when calculating your credit score.

FICO Credit Score

FICO is the most popular and widely used credit scoring model, featuring eight different FICO models ranging from FICO 2 to FICO 10. Each model produces a different credit score depending on your credit report, which varies depending on what type of lender you are using.

Here's why many FICO scores exist:

• Different credit reports have varying weight to the factors that affect your credit score.
• These lenders prefer certain FICO reports depending on the type of credit that you're applying for.

For instance, if you're applying for a home loan, the mortgage lender will most likely pull your FICO 5 credit report. Meanwhile, if you're applying for a credit card, FICO 8 would be the preferred choice.

Vantage Credit Score

The Vantage score was developed by the three major credit reporting agencies in competition with the FICO model. Vantage measures credit scores differently and is not as widely used as FICO. It is, however, gaining popularity, especially in personal loans and auto lending sectors.

How accurate is the Vantage Score?

While accurate, the Vantage Score is not widely used for lending, so it will not represent your actual lending credit score. It's a useful scoring model to give you a general idea of your credit score. Use Vantage scores to determine roughly where your overall scores are.

In conclusion, I believe that Vantage will gain more popularity in the next decade and become widely used by lenders. It's a more modern scoring model that aims to provide better scoring data than FICO. Remember, credit reporting agencies are significant data collection agencies, and they have the upper hand in providing the best scoring data.

Understanding Credit Scores

Credit scores range from 350 to 850 in both the FICO and Vantage models, with 350 being the lowest and 850 being the highest. To achieve the highest credit scores, it's important to track your progress along the way. Here are some key score thresholds to strive for:

620 or below:

This is considered bad credit. If your score is in this range, you likely have a history of adverse credit or high-balance credit card accounts. To improve your score, make timely payments and have ten active revolving credit accounts open. Consider using secured credit cards like the Credit Builder Card or OpenSky Credit Card to help you build your credit. Reaching a score of 620 means you can start qualifying for an FHA home mortgage.

640-680:

This is considered fair for good credit. Scores in this range indicate you have established credit, but you may have derogatory marks or accounts and high balances on your credit cards. Newly opened accounts can also temporarily lower your score. Don't worry, though; they will bounce back up.

740+:

Any score over 740 is considered "super-prime" and will get you the best interest rates on most loans. Congratulations if you have a score over 740! This places you in the top 20% of Americans. Keep up the good work by paying all accounts on time and keeping your revolving credit card accounts paid off.

What Credit Score Do You Need to Qualify for a Mortgage?

The credit score you need to qualify for a mortgage depends on the type of loan you're looking to get. Federal regulations and government backing ensure that most mortgage loans have similar requirements and guidelines, with some differences. The three most common types of mortgage loans are conventional loans, FHA loans, and VA loans. Here's what you need to know about each one:

Conventional Loans:

These are the most popular and typically the best "savings" loan option, apart from VA loans. They don't require private mortgage insurance (PMI), which lowers your down payment or monthly payment, but does require a credit score of 640 and a debt-to-income ratio no higher than 43%. These loans usually have lower down payment requirements and better interest rates than other types of mortgage loans.

FHA Loans:

These mortgage loans are for people with lower credit scores, typically between 580 and 619, and require you to keep PMI for at least 11 years. Although this loan offers a lower down payment option of 3.5%, interest rates are typically higher than conventional loans. The debt-to-income limit is higher at 50%, making this loan suitable if you have a lower income.

VA Loans:

There isn't a specific credit score requirement for VA loans. Still, lenders look for previously defaulted loans and government-owed past-due debts when pre-qualifying, and you must meet specific military service requirements. The down payment is not required for VA loans, and they typically have the best interest rates available. This loan is perfect for veterans who have served in the military for a certain period.

Determining a Good Credit Score for Buying a Car

In the process of buying a car, credit history proves to be more essential than credit scores in determining your eligibility for loans and the corresponding interest rates. Although having a high credit score is significant, it still plays a smaller role in deciding the interest rates for which you can qualify. Credit issues during loan applications require lenders to scrutinize your credit histories to assess risks associated with extending credit. A person who has defaulted on past or current auto loans or experienced repossession will have a tougher time finding loan approval compared to someone with no such issues. However, individuals with bad credit scores will still qualify for a loan, typically with higher down payments and additional dealership fees, transferring the risk to the dealer. The credit score range for buying a new vehicle with an ideal score for approval being over 680. A lower score means a higher interest rate due to increased risks that the buyer poses to the lender. The interest rate on a car loan decreases as the credit score rises, so a 720 credit score shows an average payment of $5,500 in interest, but a 580 score may result in an average payment of $15,300 in interest. Hence, a high credit score impacts the amount of interest paid.

Tips for Improving Your Credit Score

Improving your credit score takes time and patience, but there are steps you can take right now to make a positive impact. Here are some tips:

1. Open 3-5 revolving credit accounts:

Revolving credit, such as credit cards, is a great way to build credit. Apply for a secured credit card that focuses on your ability to make payments on time, such as Open Sky or Credit Builder Card. Revolving credit makes up 30-35% of your overall credit score and is a quick way to improve it. Use your card for small purchases like gas or groceries, and make sure to pay it off on time each month.

2. Raise your credit limits:

Request a credit limit increase from your credit card company to help lower your overall credit utilization percentage. Each company has a different process, but most will require an excellent payment history for 7-15 months.

3. Pay down your balances:

Keep your balances low and close to zero, using your credit cards sparingly for small purchases. If you have high balances, make a plan to pay them down each month. Remember to limit your credit card usage and avoid running up balances again, as this can negatively impact your credit score.

Joe's Advice on Credit Improvement

It's not uncommon to have less-than-stellar credit, but taking your current credit situation seriously and putting effort into self-improvement can yield significant results in a short time. Don't fall into the trap of feeling like poor credit is a lifelong burden, as making a turnaround requires hard work and prioritization of your finances. Begin by creating a budget and addressing any negative spending habits which can positively impact your credit score. This article is a helpful resource for understanding credit. If you require guidance or assistance with credit repair, feel free to contact our office at www.asapcreditrepairusa.com.