It's interesting to note that credit scores have as many as 30 different levels. However, many people are unaware of this fact, and often turn to Google for the best credit score solutions. Unfortunately, the information that they receive from various sources can be confusing and sometimes even misleading, leading them down a path of confusion. My name is Joe Mahlow, and I have spent the last fifteen years working in the financial literacy and credit repair space. I strive to offer frank advice on various topics, and the topic of credit scores is certainly one that requires attention. In my years of experience, I have successfully aided over twenty thousand clients in transforming their credit scores, and I am hopeful that I can help you too. So, let's delve deeper into this topic.

Contents:

Different types of credit scores

Understanding Credit Scores: What is a Good Credit Score?

Choosing the Right Credit Score for Your Home Loan

Determining the Credit Score for Buying a Car

Tips for Improving Your Credit Score

Insights from Joe on Improving Your Credit Score

Different types of credit scores

In order to understand your credit score and how it is calculated, it is important to know the different credit scoring models that exist. The two main models that you should be familiar with are the FICO model and the Vantage model.

The FICO Credit Score

The FICO credit score is the most widely used credit scoring model, with eight different FICO models ranging from FICO 2 to FICO 10. Each FICO model calculates your credit score differently based on your credit report, and the type of lender you use will determine which FICO report they pull. For example, a mortgage lender will most likely pull your FICO 5 report while a credit card company will likely pull your FICO 8 report. This is because the factors that are weighed most heavily in each report are different depending on the type of credit you are applying for.

The Vantage Credit Score

The Vantage score was developed by the three major credit reporting agencies (Equifax, Experian, and TransUnion) to compete with the FICO score. While the FICO score has been used since the seventies, the Vantage score is a newer model and not yet widely used for lending purposes. However, credit monitoring websites frequently use the Vantage score to provide a free copy of your credit report.

Is the Vantage Score accurate?

The accuracy of the Vantage score depends on the context. While it can provide a good indication of your overall score, since it is not widely used for lending purposes, it may not be accurate in terms of your actual lending score. Nonetheless, many believe that the Vantage scoring model provides a more accurate representation of credit scores based on today's standards compared to the outdated FICO scoring model. It is likely that in the next 5-10 years, lenders will start to use the Vantage scoring model more widely, as the credit reporting agencies have access to the most data when it comes to scoring models. If you want to see all your different credit scores, sign up for an account on www.myfico.com.

Understanding Credit Scores: What is a Good Credit Score?

A good credit score is considered to be within a range of 620 or higher, and the higher it gets, the more financially reliable you appear to lenders. Both the FICO and Vantage models typically range from 350 to 850, with 350 being the lowest credit score and 850 being the highest score possible. Below are some vital score thresholds to remember when building your scores:

1. 620 or below:

This is considered a bad credit score, and if you fall below this threshold, you may have adverse credit history, high-balance credit card accounts, or no credit cards at all. To improve your score, it's critical to make timely payments and have ten active revolving credit accounts open, and getting credit builder or secured credit cards like the OpenSky Card or Credit Builder Card can help you build your credit. When you reach this credit score range, you'll qualify for an FHA home mortgage.

2. 640-680:

For good credit, this is considered a fair score. If your scores fall within this range, it means you have established credit but may have some derogatory marks or accounts on your credit history, high balances on your credit cards, or newly opened accounts, which can temporarily drop your score.

3. 740 or above:

Any score above 740 is considered "super-prime," and you're in the top 20% of people in the US with this score. This rating qualifies you for the best interest rates for most loans and shows lenders that you're an excellent borrower. If you have over 740 credit score, continue paying your accounts on time, and keep your revolving credit card payments up-to-date.

Remember, it's important to set your goals and know where you stand in your credit journey to achieve your desired credit score.

Choosing the Right Credit Score for Your Home Loan

The answer to what credit score you need to buy a house depends on the type of mortgage loan you are seeking. Federal regulations and government backing result in similar, but sometimes different, requirements and guidelines across most mortgage loans. Three common mortgage loan types include the conventional, FHA, and VA loans.

1. Conventional Loans

Conventional loans are a popular option and the best savings loan alternative, apart from VA loans. Unlike other mortgage types, conventional loans don't require private mortgage insurance (PMI), potentially reducing your down payment or monthly payments, though a typical credit score of 640 and a 43% debt-to-debt ratio are needed.

2. FHA Loan

The FHA loan is for lower credit scores, typically those between 580 and 619. Each loan program possesses varying requirements, so looking around for the best financial option is wise. Consider that an FHA loan will require you to keep PMI for at least 11 years. The loan possesses a higher debt-to-income limit, up to 50%, enabling purchases of more homes than with a conventional loan. Additionally, the down payment requirements can be as low as 3.5%.

3. VA loan

Although there isn't a specific credit score requirement with the VA loan, they pre-qualify based on previous defaulted loans or past-due debts to the government. United States Military service of at least 181 days, 90 consecutive days during wartime, 6 years with National Guard, or the loss of your spouse during a duty is needed. The VA loan usually boasts the best interest rates available and usually does not require a down payment. It's an excellent option for our veterans.

Determining the Credit Score for Buying a Car

While looking to buy a car, the credit history of an individual plays a more crucial role in the determination of loan eligibility than the credit score. Even though a higher credit score is essential, the interest rate eligibility is affected more by the credit history. Lenders analyze the previous and current credit histories of an individual with credit issues to determine the risk associated with lending them money. A past incident like late payments on an auto loan or repossession can make it extremely difficult to get approved for a new loan. However, some lenders who deal in special finance approve car loans even for those who have been through repossession or have terrible credit. Such lenders have criteria for approval, like a higher down payment or additional fees charged by the dealership to lessen the risk faced by the lender. It is advisable to have equity or a downpayment to gain leverage while opting for credit to buy a vehicle.

Credit Score Range for a New Vehicle

Credit scores are not the only determinants of approval for a car loan. The ideal credit score for a car loan is over 680. A score above 680 ensures that the lender charges less interest and a lower risk of default on the loan. An individual with a credit score over 720 pays an average of $5,500 in interest on a loan for a car. Meanwhile, a person with a score below 580 pays an average of $13,900 to $15,300 in interest. Therefore, it is crucial to maintain a higher credit score to reduce the overall interest paid while applying for a car loan.

Tips for Improving Your Credit Score

Improving your credit score is a process that requires time and patience. To achieve a good credit score, you must take necessary steps that can positively impact your score over time. Here are some things you can do to help improve your credit:

1. Open 3-5 Revolving Credit Accounts:

Applying for a secured credit card like Open Sky or Credit Builder Card is a good option to maximize your credit score quickly. Revolving credit makes 30-35% of your overall credit score, and having credit cards with a good payment history can help you build your credit over time.

2. Raise Your Limits:

You can request a credit limit increase for your credit cards that will raise your overall credit limits and lower your credit utilization percentage. To do this, you need to fill out a credit increase request form, which will go to the credit team who will decide if they want to approve your request.

3. Pay Down Your Balances:

Keeping your credit card balance low and close to zero is vital. I recommend using your credit card for small purchases and leaving a $1-5 balance on your card when paying your bill each month. This will help to reduce your utilization percentage and improve your credit score.

Remember, building a good credit score takes time and effort. By following these tips, you can positively impact your credit score and improve your financial situation.

Insights from Joe on Improving Your Credit Score

It's common to experience less than perfect credit, but it's possible to turn things around with dedication and effort. Many individuals with poor credit fall into a pattern of struggling with credit problems throughout their lives and feeling powerless with no solution in sight. However, taking your credit situation seriously and working on yourself can lead to significant improvements in your credit score fairly quickly. Developing a good credit score requires work, and people who prioritize their credit and spending habits tend to excel. Begin by establishing a budget and addressing any negative spending tendencies, as these behaviors can directly affect your credit score. For further insight into credit repair and other solutions to enhance your credit score, visit www.asapcreditrepairusa.com.