It may come as a surprise, but did you know that there are actually 30 different levels of credit scores? Many individuals are under the false impression that finding the best credit score is a simple task. However, conducting a quick Google search can often result in a flood of conflicting information that can be both confusing and misleading. As an experienced member of the financial literacy and credit repair industry for over fifteen years, my name is Joe Mahlow and my aim is to share with you some raw advice on different topics, beginning with the basics of credit scores. I have helped over twenty thousand clients in transforming their credit scores and I hope to impart enough information for you to do the same. So, let's dive right in!

Contents:

Different Types of Credit Scores: FICO vs. Vantage

Understanding What Constitutes a Good Credit Score

Determining an Ideal Credit Score for a Home Loan

Determining the Credit Score Range for Buying a Car

Tips on Improving Your Credit Score

Joe's Insights on Credit Improvement

Different Types of Credit Scores: FICO vs. Vantage

To understand credit scores, it's important to know the two different credit scoring models: FICO and Vantage. The FICO credit scoring model is the most popular and widely-used model with eight different versions, while the Vantage model is a relatively new model created by the three major credit reporting agencies. It's essential to understand the differences in how the two models calculate credit scores.

FICO Credit Score

The FICO credit scoring model comes in multiple versions, depending on the type of lender you're applying to for credit. For instance, a mortgage lender will most likely pull your FICO 5 credit report, while a credit card company will most likely pull your FICO 8 credit report. This is because each FICO model weighs different credit factors differently, making some models more relevant in specific lending contexts. For example, FICO 5 mainly considers previous mortgage history, whereas FICO 8 primarily looks at credit card history.

Why So Many FICO Scores?

Each FICO score represents a credit report with a different weight based on the lender's critical factors. The factors considered most important by a lender will have more impact on the score. That's why FICO 5, for instance, will weigh heavily on previous mortgage history.

If you want to know your different FICO scores, you can sign up for an account at www.myfico.com.

Vantage Credit Score

The Vantage Score scoring model was developed to compete with FICO and is gaining popularity in some sectors, such as personal loans and auto lending. Although the Vantage Score is accurate, it's not widely used for lending purposes, which means it may not be accurate when it comes to actual lending scores. Nevertheless, it can give you a good general idea of where your FICO scores are.

Understanding What Constitutes a Good Credit Score

Both the FICO and Vantage credit score models have a range of 350 to 850, with the worst and best credit scores being 350 and 850, respectively. Achieving the highest score requires comprehending where you stand at all times. Therefore, here are some vital credit score thresholds to consider.

1. 620 or below:

Considered bad credit, indicates unpleasant credit history, high-balance credit card accounts, or the absence of credit cards in general. Timely payments and ten active revolving credit accounts can improve your credit score. Try using a secured credit card such as the Credit Builder Card or OpenSky Credit Card to enhance your credit score. Once in the 620 credit score range, you can qualify for an FHA home mortgage.

2. 640-680:

Falls under the fair for good credit category and means you have established credit, yet with some derogatory marks or accounts. High credit card balances that need paying down may also exist. Newly opened accounts can cause temporary score drops. In this range and recently opened a new account, don't worry, scores will return soon.

3. 740+:

Any credit score exceeding 740 is “super-prime” and qualifies you for loans with the best interest rates. Having a 740 credit score or higher means being part of the 20% of citizens with excellent credit scores. To maintain this score, ensure timely payments and keep revolving credit card accounts paid off. Congratulations, you're doing great!

Determining an Ideal Credit Score for a Home Loan

The credit score you need to purchase a home depends on the mortgage loan type you want to qualify for. Most mortgage loans have similarities and differences in requirements and guidelines due to federal regulation and government backing. The most common loan types are conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most favored loans and often the best loan option apart from VA loans. Private mortgage insurance (PMI) is not required for conventional loans, which eliminates extra costs that can increase downpayment or monthly payment amounts. PMI safeguards the lender in the event you default on the loan. Unlike other loan types, conventional loans typically have lower downpayment requirements and better interest rates. The typical credit score requirement is 640, while the debt-to-debt ratio should not exceed 43%.

FHA Loan

FHA loans offer competitive interest rates and are suitable if you have a lower credit score, typically between 580 and 619. As loan programs differ from one another, shop around for lenders that offer the best financial option within your credit score limits. One disadvantage is that FHA loans necessitate you to keep PMI for a minimum of 11 years, which is an additional cost to consider if you have budget constraints. The debt-to-income limit can go up to 50%, allowing you to purchase more homes than with a conventional loan if you have a low income. Furthermore, the downpayment requirement for an FHA loan is as low as 3.5% of the purchase, which means less money out of pocket to enter into a mortgage. However, the rate of interest offered is typically higher.

VA Loan

The VA loan has no credit score requirement, but pre-qualifying for the loan involves scrutinizing previously defaulted loans and any past-due government-owned debts. To qualify for this loan, you must have served in the United States Military for 181 days at least, served for 90 days consecutively in times of war, served in the National Guard for six years, or lost your military spouse during active duty. The VA loan offers the best interest rates and generally requires no down payment, making it an ideal financing option for veterans.

Determining the Credit Score Range for Buying a Car

When purchasing a car, your credit history holds more weight than your credit score in determining loan approval. Though a decent credit score holds importance, it only mildly influences the interest rate you qualify for. The lender analyzes your past and present credit relating to vehicles; someone with a realistic chance of missing car loan repayments, such as a person with a previous repossession or late auto loan payments, will undoubtedly pose a higher risk when granted credit. At times, special finance or bad credit lenders approve loans for almost anybody - but they set special criteria typical borrowers must meet, like higher down payments or additional dealership fees, to alleviate a corresponding risk. Invariably, dealerships must pay for certain types of risk, which they distribute among customers in various ways, such as limiting vehicle choices or incorporating additional charges. Last but not least, your equity or down payment holds the most significant influence while purchasing a car on credit.

The Credit Score Range for a New Car

You cannot discern approval eligibility from your credit score, as numerous factors, as stated earlier, play a crucial role. Still, a credit score of 680 or higher is ideal. Scores below this threshold increase the interest rate due to your perceived risk to lenders. The following illustrates how credit scores influence interest rates:

1. 720 credit score or above:

average interest amount is $5,500.

2. 680 credit score or above:

average interest amount is $6,600.

3. 650 credit score or above:

average interest amount is $8,100.

4. 615 credit score or above:

average interest amount is $10,200.

5. 580 credit score or above:

average interest amount is $13,900.

6. Credit score of 580 or above:

average interest amount is $15,300.

Consequently, the connection between your credit score and interest payments is that the higher your credit score, the lower the interest you'll pay on your loan, positively influencing your overall credit score.

Tips on Improving Your Credit Score

Improving your credit score takes time and effort, but there are several things you can do right now to help increase your credit score. Patience is key when building your credit score, as making hasty and bad decisions can worsen your problems. Here are some steps you can take now to improve your credit:

1. Open 3-5 Revolving Credit accounts (Credit Cards)

Revolving credit helps maximize your credit scores and is an excellent option for those looking to rebuild their credit. Obtaining a large loan to build credit takes a lot of work, so a secured credit card like Open Sky or Credit Builder Card can help improve your chances of approval. Revolving credit represents 30-35% of your overall credit score, making it the best option to help build credit scores quickly. It may take 2-4 months to show the increases in your credit scores, so ensure that you pay your balance on time and keep it at $5-10 for each payment.

2. Raise Your Limits

Requesting a credit limit increase for your credit cards can help increase your overall credit limits and lower your credit utilization percentage. You can quickly raise your limit by calling your credit card company and requesting a “Credit Limit Increase.” Ensure that you fill out some information, including your current income, and have excellent payment history for 7-15 months on a credit card.

3. Pay Down Your Balances

It is crucial to keep your balance low and close to zero. You are not obligated to use your credit card each month, so it is best to use them only for small purchases like gas or groceries. Pay down your high balances by taking a percentage of your paycheck each month and ultimately stop using your credit card. Your credit card spending habits play a significant role in your overall credit score, so it is essential to limit your credit card usage and avoid running your balance back up.

Joe's Insights on Credit Improvement

Many people have experienced the frustration of having poor credit. However, taking your credit situation seriously and dedicating time and effort to improve it can lead to significant improvements in your credit score in a short time. Unfortunately, many individuals with bad credit feel trapped in a cycle of financial difficulty and give up on the idea of ever having good credit. Building excellent credit requires hard work and commitment to prioritize your spending habits. One of the first steps to take is to create a budget and address any harmful spending patterns, which will have a direct impact on your credit score. This article provides a better understanding of credit and how to improve it. If you require assistance with credit repair or seeking guidance to enhance your credit score, please reach out to us at www.asapcreditrepairusa.com.

Key Takeaways:

- Many individuals struggle with poor credit, but it is possible to improve your credit score quickly with dedication and hard work.

- Negative credit cycles can disrupt financial stability and make it seem impossible to have good credit again.

- Developing excellent credit requires prioritizing spending habits and creating a budget.

- This article serves as a guide to gain a better understanding of credit and how to improve it.

- For expert assistance with credit repair, visit www.asapcreditrepairusa.com.