It may surprise you to learn that there are actually 30 different levels of credit scores. This fact often goes unnoticed by many individuals who search for the "best" credit score online, only to receive varying and sometimes misleading results. Hi, my name is Joe Mahlow and I have over fifteen years of experience working in financial literacy and credit repair. My aim is to provide you with unbiased guidance on various topics, including the subject of credit scores. Over the years, I have had the pleasure of helping over twenty thousand clients improve their credit scores and I hope to impart similar knowledge to you. So, let's begin!

Contents:

What are the Different Types of Credit Scores?

What is a Good Credit Score?

What is the Minimum Credit Score Required to Buy a House?

Understanding Credit Score Range When Buying a Car

Tips for Increasing Your Credit Score

Joe's Insights on Credit Improvement

What are the Different Types of Credit Scores?

Credit scores are calculated using two main models. These models are FICO and Vantage. It is crucial to understand how these models operate since they differ in how they determine your creditworthiness.

FICO Credit Score

FICO is the most popular credit scoring model, with eight different versions commonly in use. Each version produces different scores based on your credit history. The reason for this is dependent on the lenders that apply the model and the type of credit you seek. For example, if you apply for a mortgage, the lender will most likely use FICO 5, while if you are applying for credit cards, the lender will use FICO 8. Each version is designed to weigh different factors in your credit history differently, depending on the lender's requirements.

Why So Many FICO Scores?

Each FICO model is designed to weigh the critical factors that matter the most to the lender, giving them a more accurate picture of your creditworthiness. Therefore, your previous credit history will weigh heavily when a lender uses a specific FICO model. The FICO 5 model is used for mortgages, while car lenders use FICO 2. The model that credit card companies use is FICO 8. You can find out your different FICO scores by signing up for an account at www.myfico.com.

Vantage Credit Score

Vantage Score was created by the three leading credit bureaus (Equifax, Experian, and TransUnion). It is a more recent credit-scoring model compared to FICO, which has been in use since the 1970s. While FICO still dominates the lending industry, Vantage Score is gaining popularity in some sectors, such as personal loans and auto lending. Credit monitoring websites in the US frequently use the Vantage Score to provide clients with a free credit report.

Is the Vantage Score Accurate?

The accuracy of the Vantage Score depends on the context in which it is used. As it is not used widely for lending purposes, its accuracy cannot match that of the FICO score when determining your creditworthiness. Nevertheless, it is a good alternative to give you an idea of your credit score range. Though outdated, FICO is still the most recognized model. It is expected that the Vantage scoring model will be widely used by lenders in the next five to ten years due to its ability to provide the most accurate scoring based on current standards.

What is a Good Credit Score?

Your credit score is measured using the FICO and Vantage models, which range from 350 to 850. A score of 350 is considered the worst, while a rating of 850 is the best. If you plan to increase your credit score, you need to know where you stand. Here are some helpful score thresholds:

620 or below:

620 or below: A score in this range is considered poor credit. To increase your credit score, make sure to pay your bills on time and have ten active revolving credit accounts. Consider applying for a Credit Builder Card or OpenSky Credit Card, which are secured credit cards designed to help you boost your credit. With a score of 620, you can qualify for an FHA home mortgage.

640-680:

640-680: A score in this range is considered fair for good credit. Although your score is decent, you might have some derogatory marks or accounts on your credit. Additionally, you might have some newly opened accounts that cause temporary drops in your scores. To keep your scores up, make sure to pay down high balances on your credit cards.

740+:

740+: A credit score over 740 is considered "super-prime" and can give you the best interest rates on most loans. Only about 20% of the US population have this score, so congratulations if you are part of this group! Keep up the good work, always pay your accounts on time, and keep your revolving credit card accounts paid.

What is the Minimum Credit Score Required to Buy a House?

The required credit score to qualify for a mortgage loan depends on the type of loan you are applying for. The guidelines and regulations for most mortgage loans are usually similar, but not identical due to federal regulations and government backing. The three most common types of mortgage loans are conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans are the most popular and the best option after the VA loan. These loans do not require private mortgage insurance (PMI) and usually have lower downpayment requirements and better interest rates. The credit score requirement for conventional loans is typically 640, and the debt-to-income ratio must not exceed 43%.

2. FHA Loans

The minimum credit score required for an FHA mortgage loan is usually within the 580 to 619 range, making it a more accessible mortgage loan option for people with lower credit scores. However, FHA loans require PMI for at least 11 years, which can increase your monthly payment or downpayment. The debt-to-income ratio requirement for this loan can exceed 50%, allowing low-income earners to buy more homes. FHA loans require a down payment of 3.5% of the purchase price, which can be lower than conventional loans, but the interest rate is typically higher.

3. VA Loans

There is no particular credit score requirement for VA loans, but the loan provider will check if you have any defaulted loans or government-owed past-due debts during the pre-qualification stage. To qualify for a VA loan, you must have served in the United States Military for at least 181 days, served 90 consecutive days during wartime, served six years with the National Guard, or be a military spouse who lost their life during active duty. VA loans have the best interest rates available, and you do not need to make a downpayment. This loan type is an excellent way for the country to repay its veterans for their service.

Understanding Credit Score Range When Buying a Car

When considering buying a car, your credit history is more important than your credit score. A higher credit score is not the sole determinant of the interest rate you can get. Lenders assess your current and previous credit histories to gauge your creditworthiness. Those with credit issues such as late auto loan payments, repossession, or bad credit score might face difficulties qualifying for a car loan, unlike those without such issues. Although bad credit or special finance lenders may qualify most people for loans, they may impose additional criteria, including higher down payments and additional dealership fees to offset the risk of approving such loans. Your credit score affects how much interest you pay on a loan, with scores above 680 being ideal. Interest rates vary with credit scores, with higher scores correlating with lower interest rates and vice versa.

According to current data, different credit scores correspond to varying interest rates. For instance, a 720 credit score or higher leads to an average of $5,500 interest on a loan, whereas a 580 credit score or higher attracts an average of $15,300 in interest on a loan. Therefore, a higher credit score means less interest paid, affecting your overall credit score. To maximize your benefits when purchasing a car on credit, ensure that you have equity or an adequate down payment.

Tips for Increasing Your Credit Score:

Improving your credit score takes patience and consistent effort. If you need to bolster your credit score, here are some strategies to help you get started:

1. Open 3-5 revolving credit accounts:

   Revolving credit accounts, like credit cards, can help you improve your credit score. Start with a secured credit card that doesn't require a high credit score to qualify, such as Open Sky or Credit Builder Card. Revolving credit accounts make up a significant portion of your overall credit score, so make sure you pay off your balance on time each month.

2. Raise your credit limits:

   Request a credit limit increase for your credit cards to help increase your overall credit limits and lower your credit utilization percentage. Most credit card companies will require good payment history for seven to fifteen months before they agree to a credit limit increase.

3. Pay down your balances:

   Paying off your balances will help you limit your credit card usage and ultimately improve your credit score. Make a plan to pay off a percentage of your credit card debt each month if you can't pay it off all at once. Also, limit your credit card usage to small purchases, and keep your balance low and close to zero.

Remember, building a good credit score takes time, patience, and good financial habits. With these tips, you can start improving your credit score today.

Joe's Insights on Credit Improvement

Poor credit is a predicament familiar to many of us. However, if you're determined to improve your credit situation, paying attention to your credit history can lead to remarkable changes in your credit rating in a short time. Individuals with bad credit frequently fall into a cycle of poor credit behavior that they believe they'll never escape. Achieving an excellent credit score is challenging work, but it's well worth the effort for those who prioritize their credit status and curtail their spending habits. Budgeting is an excellent place to start, followed by correcting any negative spending behaviors that may be affecting your credit score. This write-up provides helpful insights into improving credit. If you require further guidance or credit repair assistance, please contact my office today at www.asapcreditrepairusa.com.