It may come as a surprise, but did you know that there are 30 different levels of credit scores? Many individuals run to search engines such as Google when seeking advice on achieving the best credit score. However, the information they find can be perplexing and even misleading. My name is Joe Mahlow, and I have been in the financial literacy and credit repair industry for over fifteen years. Through my experience, I have helped over twenty thousand clients improve their credit scores and financial standings. My aim is to provide you with honest guidance on several topics, including credit scores. So, let us delve into the details and equip you with the information you need to achieve financial success.

Contents:

Different Credit Scores: Know the Models

Understanding a Good Credit Score Range

Determining the Ideal Credit Score for Buying a Home

Determining the Ideal Credit Score to Buy a Car

Assisting with raising your credit score

Joe's Advice on Navigating Bad Credit

Different Credit Scores: Know the Models

Credit scoring models are important in determining a borrower's creditworthiness. The FICO and Vantage scoring models are the two most widely used models available. Each scoring model uses different criteria in calculating credit scores, and it’s important to understand the differences.

FICO Credit Score

The FICO credit scoring model is the most widely used in the lending sector. Even though there are eight different FICO models available, lenders typically use different models depending on the type of loan you're seeking. For instance, mortgage lenders use FICO 5, while credit card companies rely on FICO 8. The reason for the many FICO models is that each credit report has different factors that weigh differently on your credit score. If you want to see your FICO scores, go to myfico.com and sign up for an account.

Vantage Credit Score

Developed by Equifax, Experian, and TransUnion, Vantage Score is a relatively new credit scoring model competing with FICO. Vantage Score can offer a "general idea" of your FICO score, but it's not widely used in the lending sector, so it won't give you an actual lending score. Nevertheless, Vantage Score is gaining popularity, particularly in sectors such as personal loans and auto lending. Many credit monitoring websites offer free Vantage Score reports.

Accuracy of the Vantage Score

Vantage Score is a dependable model, but its accuracy can vary, depending on the context. Although it's not yet widely used by lenders, it could be one day. The Vantage scoring model provides the best scores based on today's standards, and credit reporting agencies have the most significant data collection resources, which gives them the upper hand in providing accurate scoring data. It's important to remember that your credit score is only as precise as your ability to obtain a loan, and FICO remains the most recognized scoring model in the lending industry.

Understanding a Good Credit Score Range

When it comes to credit scores, both the FICO and Vantage models follow the same range. Scores can range from 350 to 850, with the worst score being 350, and the best score being 850. As you work on improving your credit scores, it's important to know where you stand and what score thresholds to hit. Here are the crucial credit score ranges you should aim for:

1. 620 or below:

   • This is considered a bad credit score.

   • Having this score means you likely have a history of adverse credit or high-balance credit card accounts, or no credit cards at all.

   • To improve your credit score, try making timely payments and have at least ten active revolving credit accounts.

   • Consider a Credit Builder Card or OpenSky Credit Card to help build your credit.

   • Once you reach the 620 credit score range, you can start qualifying for an FHA home mortgage.

2. 640-680:

   • This score range is considered fair or good credit.

   • Having this score range means you likely have an established credit history. However, you may also have some derogatory marks, high balances on your credit cards, or recently opened accounts that can temporarily lower your scores.

   • To maintain or improve your score, be sure to pay your accounts on time and keep your revolving credit card accounts paid.

3. 740+:

   • Any score over 740 is considered "super-prime" and gives you the best interest rates for most loans.

   • Congratulations if you have a score of 740 or more, as you're part of the 20% of the US population with this score.

   • Keep up the good work by continuing to pay your accounts on time and keeping your revolving credit card accounts paid.

Determining the Ideal Credit Score for Buying a Home

To establish the ideal credit score required to purchase a home, the type of mortgage loan you hope to qualify for is the defining element. The majority of mortgage loans have comparable guidelines and requirements with governing support and federal regulations. The three most commonly used loan types include conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans are prevalent and, when compared to VA loans, usually the best 'savings' loan option. One of the most noteworthy characteristics of conventional loans is that they do not require you to maintain private mortgage insurance (PMI), which can increase your downpayment or monthly payment costs. Conventional loans usually have lower downpayment requirements compared to other types of loans. Similarly, they often have better interest rates. A typical credit score requirement of 640 and a debt-to-income ratio no higher than 43% are common requests for conventional mortgage loans.

2. FHA Loans

FHA mortgage loans are for those with lower credit scores, typically ranging between 580 and 619. Reminder: loan programs are distinct, so even though you are within the credit score limits, finding different lenders can offer you the best financial solution. FHA loans necessitate maintaining PMI for at least 11 years, which can lead to costs added to your mortgage. It is important to consider this additional expense, particularly if you are on a budget. If you have a lower income, this form of loan typically has a higher debt-to-income limit of up to 50%, allowing you to purchase more homes than a conventional loan would usually permit. Finally, the downpayment requirements for an FHA loan are as low as 3.5% of the purchase, attracting a lower upfront cost compared to a conventional loan. However, you should expect a higher interest rate.

3. VA Loans

The VA loan does not have a specific credit score requirement, but these loans do examine past defaults and any government-owned due debts when pre-qualifying you. You must have served in the United States Military for a minimum of 181 days, served 90 consecutive days in times of war, served six years with the National Guard, or your spouse was in the military and lost their life during active duty. The VA loan is renowned for having the lowest interest rates available, and it typically does not require any down payment. The VA Loan is an excellent option for veterans, and we love the way it acknowledges their service.

Determining the Ideal Credit Score to Buy a Car

When purchasing a car, your credit history holds more weight than your credit score when determining your eligibility for a loan. Although a good credit score is essential, it does not have a significant impact on the interest rate for which you qualify. Creditors closely scrutinize your past and present credit history to evaluate the risk involved with lending. For instance, if you have a history of late payments on an auto loan or have experienced repossession, securing approval for a loan can be challenging. Although bad-credit or special-finance lenders may extend credit almost to anyone, they impose particular criteria such as higher down payments and additional dealership fees. In such situations, dealerships pay to cover the risk if the borrower defaults on the loan. With an equity or down payment, you gain leverage in buying a car on credit.

The Credit Score Range for Buying a New Car

While the credit score alone cannot guarantee approval, a score above 680 is ideal. Anything below this can increase the interest rate charged to you due to your high-risk status to the lender. Based on the current example, a good credit score saves you a significant amount of interest. For instance, a borrower with a credit score of 720 or above pays an average of $5,500 in interest, while a borrower with a score of 580 or above pays around $13,900 in interest on the same loan. Therefore, maintaining a good credit score should be a top consideration for car financing.

Assisting with raising your credit score

Raising your credit score is essential, and luckily, there are several actions you can take right now with minimal effort. Building a good credit score takes time and patience, and irrational decisions can make things worse. Here are some ways to improve your credit score:

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

Revolving credit is an excellent option to maximize your credit scores. If you have limited credit or want to rebuild your credit, obtaining a large loan is not the best approach. A secured credit card that does not focus on your credit score is an excellent place to start. Revolving credit accounts make up 30-35% of your overall credit score and help increase your credit score quickly. It is best to pay your balance on time and keep it between $5-$10 each time you make a payment. Limit the use of the card to small purchases like gas or groceries.

2. Raise your Limits!

Request a credit limit increase for your credit cards to increase your overall credit limits and lower your credit utilization percentage. Most people utilize their credit cards extensively, and exceeding 30% of your overall limits can harm your credit scores.

3. Pay down your balances!

Keeping your balance low and close to zero is critical. It is not necessary to use your credit cards each month, and it is best to leave about a $1-$5 balance on your credit cards. If you currently have high balances, make a game plan to pay them off using a percentage of your paycheck each month. Limit your credit card usage, and stop using them once you pay them off. Your credit card spending habits play a significant role in your overall credit score, and most of your payments will go towards interest rather than principal.

Joe's Advice on Navigating Bad Credit

It's no secret that many of us have faced the challenges of bad credit. However, if you're committed to improving your credit situation, you'll be surprised by how quickly you can see positive changes in your credit score. Unfortunately, many consumers fall into the trap of thinking that they'll never be able to repair their credit, and some even resign themselves to a lifetime of poor credit. The truth is that building great credit takes time and effort, but those who prioritize their credit and focus on responsible spending habits will reap the rewards. Start by creating a budget and identifying and correcting any harmful spending habits. The progress you make in these areas will translate to your credit score. If you need help on your credit journey, don't hesitate to reach out to my office at www.asapcreditrepairusa.com. Here's a summary of the key points Joe makes:

• Don't give up on improving your credit score.
• Prioritize your credit and focus on responsible spending habits.
• Creating a budget is a good place to start.
• Progress in responsible spending will reflect positively on your credit score.
• Reach out for help if you need it.