It's surprising how many people are unaware of the fact that there are 30 different levels of credit scores. Often, when searching for the best credit score, people end up with a lot of mixed responses from Google. Unfortunately, much of the information out there is more confusing than helpful and can even lead people down a confusing path. As a financial literacy and credit repair specialist with over fifteen years of experience, my mission is to give you honest and direct advice on a range of topics, including credit scores. Over the years, I have been fortunate enough to help more than twenty thousand clients improve their credit scores, and I hope to do the same for you. Let's dive in and explore the ins and outs of credit scores!

Contents:

Different Types of Credit Scores

Understanding Credit Scores

What Credit Score is Best for Buying a Home

Determining the Optimal Credit Score for Car Purchase

Tips to Improve Your Credit Score

Advice from Joe on Improving Your Credit Score

Different Types of Credit Scores

Understanding credit scores is essential to effectively managing your finances. There are two primary credit scoring models, the FICO model and the Vantage model. Knowing the differences in how they calculate your credit score can make a significant difference in achieving your financial goals.

FICO Credit Score

The FICO credit scoring model is the most popular and widely used. With eight different FICO models from FICO 2 to FICO 10, it is possible to have different credit scores depending on your credit report. The reason for this is that different lenders pull different FICO reports based on the type of credit you are applying for. For example, a mortgage lender would usually pull your Fico 5 credit report while a credit card company would most likely pull your Fico 8 credit report.

The various FICO models are used by lenders to prioritize the factors that are most critical to them, leading them to have different "weights." For instance, when applying for a mortgage loan, the FICO 5 report will give more weight to your previous mortgage history, while for credit card applications, the FICO 8 report will be used, emphasizing previous credit card history. Similarly, auto lenders primarily use Fico-2 reports, and again, the scores are heavily influenced by your previous auto history.

To get a better understanding of your FICO scores, visit myfico.com and sign up for an account to see all your different credit scores.

Vantage Credit Score

The Vantage Score scoring model was created by the three major credit reporting agencies (Equifax, Experian, and TransUnion) to compete with the FICO scoring model. It is a new scoring model compared to the FICO model, which has been used since the seventies. Though FICO still dominates the lending sector, the Vantage Model is gaining popularity in some sectors, such as personal loans and auto lending.

Although the Vantage Score is accurate, it is not widely used for lending purposes, and therefore may not reflect your actual lending score accurately.

Instead, it can provide a good general idea of your FICO score. As it's difficult to know your FICO score without paying for it or having a lender pull your credit report, your Vantage score can give you an idea of where your overall scores stand.

Credit reporting agencies have the most significant collection of credit data and are in the best position to provide the best score data. For this reason, the Vantage scoring model is expected to become more widely used in lending, as it provides the best scores based on current standards.

In conclusion, understanding credit scores is vital, and having knowledge about the various credit scoring models is essential to achieving financial goals.

Understanding Credit Scores

Credit scores are important measurements of your creditworthiness, and both the FICO and Vantage models use a range of scores from 350 to 850. While 350 is the worst score you can have, 850 is the best score achievable. It's essential to know where you stand when building your scores, so I'll walk you through some vital score thresholds.

1. 620 or below

This score range is considered bad credit, indicating a possible adverse credit history or a lack of credit, and high-balance credit card accounts. The way to improve your score is by timely payments and having at least ten active revolving credit accounts. A Credit Builder Card or an OpenSky Credit Card is recommended for secured credit cards that can help you build your credit score. This score range could qualify you for an FHA home mortgage.

2. 640-680

This range is considered a fair score for good credit, indicative of an established credit history with some derogatory marks or accounts. High balances on your credit cards and newly opened accounts can temporarily drop your score. If this happens, don't panic, and your score will return shortly.

3. 740+

Any score over 740 is considered super-prime and part of the 20% of the US population in this category. This score range will give you the best interest rates for most loans. Keeping up-to-date with your accounts and paying them on time will help you maintain a good credit score. Congratulations if you have a score over 740 – keep up the great work!

What Credit Score is Best for Buying a Home?

When it comes to qualifying for a mortgage loan, the ideal credit score largely depends on the type of loan program you're looking for. Various federal regulations and government backing ensure that the requirements and guidelines for most mortgage loans are similar yet distinctive. Here are the three main types of mortgage loans and their features:

1. Conventional Loans

Conventional loans are the most commonly used and the best "savings" option outside the VA loan. These loans do not require private mortgage insurance (PMI), which can add extra costs. The credit score requirement for conventional loans is usually 640, with a debt-to-debt ratio no higher than 43%. Additionally, down payment requirements are low, and interest rates are better than for other types of loans.

2. FHA Loan

The FHA loan is ideal for those with lower credit scores, typically between 580 and 619. Keep in mind that different lenders offer different terms, so shop around carefully. PMI is a requirement for FHA loans, at least for the first 11 years, and the debt-to-income limit is relatively high-up to 50%. Although a low down payment of 3.5% is needed to buy a house with an FHA loan, the interest rate is typically quite high.

3. VA Loan

The VA Loan does not have a credit score stipulation, but the authorities assess previous defaulted loans and any government-owed past-due debts when pre-qualifying you. You must have served in the military for a certain period of time, as stated in the eligibility criteria. VA loans have excellent interest rates and usually do not require a down payment. Since they provide support to veterans, they are an excellent way of giving back.

Determining the Optimal Credit Score for Car Purchase

While many believe that a high credit score is the most essential factor for car loans, it's actually your credit history that holds more weight. Although a high credit score is germane, it only affects the interest rate you qualify for. Your credit history plays a more comprehensive role in determining loan approval risk. Lenders assess previous and current credit histories to decide if they can extend credit. For instance, if a borrower has a history of missed payments or repossession, obtaining loan approval becomes challenging. Exorbitant credit risk can compel lenders to subject borrowers to more rigorous scrutiny before approval, such as higher down payments and dealer fees. Some dealerships will increase fees on the cars they sell to individuals with bad credit to mitigate lender risk. Additionally, improving your equity or down payment offers more leverage when buying a vehicle on credit.

Credit Score Range for a New Car

The credit score required for securing approval for a car loan is not conclusive since multiple factors come into play. However, the ideal credit score range is 680 and above. A score below this may increase the interest rate charged to the borrower due to the underlying credit risk. To contextualize interest rates, someone with a 720 credit score or above pays around $5,500 in interest, whereas a score of 580 or above would result in an average interest rate of $15,300— revealing how critical credit scores can be in deciding the interest rates offered.

Tips to Improve Your Credit Score

Improving your credit score is possible with some simple strategies that require patience and persistence. While building good credit takes time, it is crucial to avoid making poor decisions with your credit, which can worsen your situation. Here are some tips to help you improve your credit score:

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

Revolving credit is an excellent option to maximize your credit scores, especially if you have limited or damaged credit. Starting with a secured credit card from Open Sky or Credit Builder Card is recommended as they focus on your payment ability rather than your credit score. Revolving credit includes 30-35% of your total credit score, and it can take a few months to show improvement. Make small purchases around $5-10 and pay your balance on time every month to achieve the best results.

2. Raise your Limits!

Requesting a credit limit increase for your active revolving credit card accounts can help increase your overall credit limits, lowering your credit utilization percentage. Higher credit utilization can harm your credit score, and most credit card companies require around seven to fifteen months of excellent payment history to approve your credit limit increase request. Contact your credit card company online or by phone to request credit limit increases, and provide your current income information.

3. Pay down your balances!

Keeping your balance low and close to zero is essential for your credit score. Avoid high balances as much as possible and pay down your credit cards monthly. Limit your credit card usage and avoid running up balances on multiple cards. If you currently have high balances, create a game plan where you can take an "x" percentage of your paycheck each month to pay it off. Since the rates on a credit card are generally high, most of your payments will go towards interest and not principal.

Advice from Joe on Improving Your Credit Score

We've all had experiences with less than perfect credit at some point. However, taking some time to work on your credit situation and putting in some effort can lead to significant improvements in your score. Frequently, people with low credit scores get caught up in a cycle that seems impossible to break. Nevertheless, improving your credit score is doable with sustained work towards better financial habits and prioritizing your credit. Beginning with creating a budget and addressing any bad spending habits will help in this endeavor, as it will directly reflect on your credit score. If you need credit repair or guidance on improving your credit score, you can reach out to us by visiting www.asapcreditrepairusa.com. This article is designed to provide you with a better understanding of credit. Here are some guidelines to follow:

1. Take your credit situation seriously

2. Be willing to put in the effort to work on yourself and your credit

3. Focus on your spending habits

4. Prioritize your credit by creating a budget.