It may come as a surprise to you that there are actually 30 different levels of credit scores. Sometimes when searching for the best credit score, people often find themselves sifting through a sea of differing answers on Google. This can not only be frustrating, but also somewhat misleading. My name is Joe Mahlow, and I've been working in the field of financial literacy and credit repair for more than fifteen years. My aim is to provide you with honest and practical advice on various topics such as credit scores. Over the years, I've helped thousands of clients improve their credit scores and by sharing the following information, I hope to do the same for you. So, let's dive in!

Contents:

Different Types of Credit Scores: FICO vs Vantage

Understanding What Constitutes a Good Credit Score

What Credit Score Do You Need to Buy a House?

Determining Credit Score for Buying a Car

Tips for Improving Your Credit Score

Final Thoughts from Joe on Improving Your Credit

Different Types of Credit Scores: FICO vs Vantage

There are two credit scoring models that are widely used, namely the FICO model and the Vantage model. Both models have specific ways of calculating credit scores, and it is important to understand the differences between them.

FICO Credit Score

The FICO model is the most popular and widely used credit scoring model, with eight FICO scores available for use. Lenders use different FICO scores depending on the type of credit you are applying for. For example, a home mortgage lender will most likely pull your Fico 5 credit report, while a credit card company will typically pull your Fico 8 report. FICO scores differ based on the "weight" of the factors critical to the lender, and this affects your credit score. For instance, if you have a great payment history on a previous mortgage, your FICO 5 score will weigh more in your favor than if you had no history or negative history.

Vantage Credit Score

In contrast, the Vantage scoring model was developed by the three major credit reporting agencies to compete with the FICO score. While FICO has been used since the seventies, Vantage is a relatively new scoring model gaining popularity in select sectors such as personal loans and auto lending. Vantage scores are not widely used for lending purposes, so they may not be accurate when it comes to your actual lending score. Instead, the Vantage score can give you a general idea of your FICO score. Since it's hard to know your FICO score without paying for it or having a lender pull your credit report, using your vantage score can help you understand your overall scores better.

Accuracy

The accuracy of the Vantage score varies depending on the context within which it is used. While it is an accurate scoring model, its accuracy can fluctuate based on its lack of recognition in the lending sector where FICO currently dominates. However, I believe that the Vantage model is quickly gaining ground due to its ability to provide the best scoring models based on current standards. In contrast, the FICO model is outdated and does not provide a clear representation of credit scores.

If you're interested in obtaining a visual representation of your different FICO scores, visit the official FICO website and sign up for an account to view all your scores.

Understanding What Constitutes a Good Credit Score

Credit scores are measured on a range from 350 to 850 for both FICO and Vantage models, with 350 representing the lowest possible score and 850 indicating the highest. Needless to say, having a higher credit score is desirable. Thus, it’s essential to be aware of your score thresholds when working towards this goal. We have highlighted a few score thresholds below to help you gain a better grasp of where you stand on your credit journey.

1. 620 or below

A credit score within this range is considered bad credit and may indicate an adverse credit history, high-balance credit card accounts, or generally no credit cards. To improve your credit score, it’s advisable to make timely payments and maintain ten active revolving credit accounts. We recommend using secured credit cards like the Credit Builder Card or OpenSky Credit Card to help build your credit. Once you reach the 620 credit score range, you are eligible to qualify for an FHA home mortgage.

2. 640-680

Credit scores in this range are considered fair or good. It could imply that you have established credit, although you may have derogatory marks or accounts, as well as high balances on your credit cards that you need to pay down. Additionally, recently opened accounts may cause temporary drops in your scores. If this is the case, don't panic as your scores will bounce back.

3. 740+

Any credit score above 740 is considered "super-prime" and offers the best interest rates for most loans. If you have this score, congratulations because you are part of only 20% of the US population considered to have an excellent score. Keep up the good work by making timely payments and maintaining revolving credit card accounts in good standing. You will be in great shape!

What Credit Score Do You Need to Buy a House?

To determine the appropriate credit score for buying a house, several factors are considered, including the type of mortgage loan selected. Mortgage requirements and guidelines vary depending on the loan. The three most popular mortgage loan types include conventional loans, FHA loans, and VA loans. Below is a breakdown of each type.

1. Conventional Loans

Conventional loans are the most preferred option for homebuyers. They attract lower down payments and better interest rates than other loans. Further, they do not require you to keep Private Mortgage Insurance (PMI), which helps cut expenses that can increase your down payment or monthly payment. Conventional loans have a typical credit score requisite of 640, and a debt-to-debt ratio limit of up to 43%.

2. FHA Loans

For lower credit scores, FHA loans offer a good alternative. Credit scores between 580 and 619 qualify for FHA loans. As with any loan program, research for a lender with the best financial offer for you. Note that FHA loans require you to keep PMI for at least 11 years, which can be expensive. The maximum debt-to-income limit is 50%. Although FHA loans draw higher interest rates, they attract down payments of as low as 3.5%, enabling you to enter into a mortgage transaction with less money.

3. VA Loans

VA loans do not impose a credit score requirement; however, they scrutinize defaulted loan history and any past-due debts owed to the government. Eligible parties for VA loans include people who served in the US Military for at least 181 days, 90 consecutive days during wartime, six years with the National Guard, or spouses of military personnel who lost their lives while serving. A VA loan has the best interest rates and requires no down payment. VA loans are ideal for veterans.

Determining Credit Score for Buying a Car

When you plan on purchasing a car, your credit history takes precedence over your credit score. While having a good credit score is a crucial factor, it plays a lesser role in determining the interest rate you qualify for. When you apply for a car loan, creditors scrutinize over your past and present credit histories to assess the risk in extending credit to you. The severity of your credit issues, like late payments or repossession, can impact your ability to get approval. Special finance lenders or those catering to people with bad credit, although willing to approve just about anyone, will require a higher down payment or additional fees to extend the loan to you. Dealerships may charge an extra fee to cover the risk of you defaulting a loan. Therefore, it is essential to have equity or a down payment to have maximum leverage while buying a car on credit.

What is the Credit Score Range for Buying a New Vehicle?

Many elements determine whether you are eligible for a car loan, and no exact credit score score dictates approval. A credit score above 680 is ideal, as anything below it can increase the interest rate. The credit score range also plays a prominent role in deciding the interest rate, impacting the overall cost of the vehicle purchase. For example, someone with a 720 or above credit score will pay a lower interest rate than one with a 580 or above credit score. This negatively impacts the creditworthiness, leading to higher interest rates, increasing the risk and overall interest payments on the loan.

Tips for Improving Your Credit Score

Achieving a good credit score requires time and effort, but you can take several steps to improve your credit score. The key is to exercise patience and avoid impulsive decisions that can worsen the situation. Here are some tips to enhance your credit score:

1. Open 3-5 revolving credit accounts:

Revolving credit (i.e., credit cards) can significantly improve your credit score. If you're new to credit or rebuilding your credit, securing a big loan can be challenging. Therefore, start with a secured credit card like OpenSky or Credit Builder Card, which focus on your ability to pay on time rather than your score. Keep your balance at $5–10 and pay it on time, which can show results in 2-4 months.

2. Increase your credit limits:

Requesting a credit limit increase for your active credit cards can raise your overall limits and lower your utilization percentage; the extent of which contributes to up to 30–35% of your overall score. Contact your credit card company to request a credit limit increase. They'll look for 7–15 months of a history of excellent payment before making a decision.

3. Pay down your balances:

Keeping your balance close to zero is essential, and using them for small purchases can help you achieve this. Leave $1-5 balances on your cards, pay them on time, and avoid running up the balance. Making payments regularly can significantly improve your credit score.

Final Thoughts from Joe on Improving Your Credit

We've all encountered difficulties with our credit ratings at some point. However, if you take your current credit situation seriously and devote the time and effort to improving your credit, you may experience significant changes in your credit score in a short period of time. Most people with poor credit fall into the trap of thinking that they will always have credit problems and that improving their credit rating is impossible. It takes significant effort to establish an excellent credit score, and those who prioritize their credit and spending habits will succeed. To begin, devise a budget and focus on addressing any problematic spending habits; this approach will have a direct impact on your credit score. This paper provides further insights into credit. If you need assistance with repairing your credit score, please reach out to our office today at www.asapcreditrepairusa.com.