Were you aware that the phrase "best credit score" can yield a variety of results on search engines like Google? This can be confusing for people who are not aware that there are actually 30 different credit score levels. Unfortunately, some of the information available online may be unclear or even misleading, making it easy to become lost in a web of misinformation. As someone who has been involved in financial literacy and credit repair for fifteen years, my name is Joe Mahlow, and I intend to share authentic advice on a range of topics, including credit scores. My goal is to provide you with all the necessary information so you can make informed decisions about your credit score. Through my experience, I have aided over 20,000 clients to improve their credit scores, and I hope I can provide you with enough knowledge to accomplish the same. Let's delve into it.
Contents:
Understanding Credit Scores: FICO and Vantage Models
Guide to Understanding Credit Scores
Credit Score Requirements for Different Mortgage Loans
Ideal Credit Score Range for Buying a Car
Tips for Enhancing Your Credit Score
Tips from Joe on Improving Your Credit Score
Understanding Credit Scores: FICO and Vantage Models
Credit scores play a vital role in the lending industry. Two popular credit scoring models are the FICO and Vantage models, which function differently from each other in determining credit scores.
FICO Credit Score
FICO is the leading credit scoring model and is widely used in lending. The model has eight scoring variants, ranging from FICO 2 to FICO 10, each analyzing credit reports differently. Lenders pull different FICO reports depending on the type of credit you're applying for. For instance, a mortgage loan will require a FICO 5 report, while a credit card issuer will use FICO 8.
Why so many FICO scores?
Each FICO score varies, depending on the weight of factors critical to the lender. For example, a FICO 5 mortgage report scores heavily on past mortgage history, while a FICO 8 credit report scores your credit card history most. Auto lenders often use FICO-2 reports, where past auto history carries significant weightage.
Vantage Credit Score
Major credit reporting agencies created the Vantage Score model for competition with FICO. Although it's been in use for some time, it has not yet reached FICO's popularity in the lending sector. Credit monitoring websites provide Vantage for free credit reports.
Is the Vantage Score accurate?
The Vantage Score provides accurate credit scores but may differ from FICO's scoring model. As a general idea of your credit score, it's reliable. With lenders gradually adopting Vantage, it may become mainstream in the future. The FICO model, however, remains the dominant model used by lenders to determine creditworthiness.
Credit scoring is a critical part of lending, and understanding the FICO and Vantage models can help you take control of your credit report. You can get a better understanding of your credit scores by acquiring an account with www.myfico.com. Remember, credit bureaus have vast data collection, making them the most reliable source for the best scoring data.
Guide to Understanding Credit Scores
Credit scores are calculated using both FICO and Vantage models and range from 350 to 850. Scoring 350 is the worst and 850 is the best credit score. To improve credit scores, it's essential to know where you stand and the following score thresholds can help:
1. 620 or below
Considered bad credit and indicates adverse credit history, high credit card balances, or not having credit cards. To boost scores in this range, make timely payments and have ten active revolving credit accounts open. Consider secured credit cards such as Credit Builder Card or OpenSky Credit Card. One can qualify for an FHA home mortgage after hitting the 620 credit score threshold.
2. 640-680
Considered fair for good credit, shows established credit with some derogatory marks or high credit card balances or newly opened accounts. Scores can temporarily drop when opening a new account.
3. 740+
Considered "super-prime," scoring over 740 can provide the best interest rates on loans. Achieving this indicates being in the top 20% of the US population. Make timely payments on accounts and keep revolving credit card accounts paid to maintain a high score.
Credit Score Requirements for Different Mortgage Loans
The credit score you need to buy a house depends on what type of mortgage loan you are trying to qualify for. The federal government regulates and backs most mortgage loans, so you will find that many requirements and guidelines are similar. Here are the details on the three most common mortgage loan types: conventional loans, FHA loans, and VA loans.
1. Conventional Loans
This is the most popular type of loan and is commonly known as the best "savings" option outside of the VA loan.
If you take out a conventional loan, you will not be required to maintain private mortgage insurance (PMI), which can add to your monthly payment amount or down payment.
Conventional loans often have lower down payment requirements and better interest rates than other mortgage loans.
The credit score requirement is typically around 640 and the debt-to-income ratio should not exceed 43%.
2. FHA Loans
This type of loan is for those with lower credit scores, usually between 580 and 619.
You will need to shop around and look for different lenders since each loan program has its own criteria.
With an FHA loan, you will need to keep PMI for at least 11 years, which may make your mortgage more expensive.
Debt-to-income limit is higher, approximately 50%, so you can buy more homes with a lower income.
Down payment requirements are as low as 3.5% of the purchase price but usually come with higher interest rates.
3. VA Loans
This type of loan is unique because there technically isn't a credit score requirement, but they do look for previous defaulted loans and government-owed past-due debts.
To qualify for a VA loan, you must have served in the military for a minimum of 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or your spouse must have lost their life during active duty.
VA loans typically have the best interest rates and usually don’t require a down payment.
This loan option is an excellent way to give back to veterans.
Ideal Credit Score Range for Buying a Car
When looking to buy a car, your credit history is more important than your credit score. While a good credit score is essential, it doesn't play a major role in determining the interest rate that you qualify for. This is because lenders look at your credit history to determine the risk involved in lending you money. If you have a late payment or repossession on your credit history, it will make it harder to get approved for a loan. However, even if you have a poor credit history, some lenders will still qualify you for a loan but with additional fees and a higher down payment. It's essential to have a down payment or equity in a vehicle to leverage when buying a car on credit.
When it comes to the credit score range for buying a new vehicle, there is no exact score that guarantees approval. However, a credit score over 680 is considered ideal. Anything below this score increases the interest rate you are charged due to the level of risk you pose to the lender.
Here is how credit scores affect the amount of interest you will pay on a loan:
1. Those with a credit score of 720 or above will pay an average of $5,500 in interest on a loan.
2. Those with a credit score of 680 or above will pay an average of $6,600 in interest on a loan.
3. Those with a credit score of 650 or above will pay an average of $8,100 in interest on a loan.
4. Those with a credit score of 615 or above will pay an average of $10,200 in interest on a loan.
5. Those with a credit score of 580 or above will pay an average of $13,900 in interest on a loan.
6. Those with a credit score of 580 or above will pay an average of $15,300 in interest on a loan.
As you can see, a higher credit score means you will end up paying less interest on your loan, which can help improve your overall credit score.
Tips for Enhancing Your Credit Score
Improving your credit score takes time and effort, but there are simple steps you can take to increase your score steadily. Patience is essential, so don't make hasty financial decisions that could aggravate your position further. Here are some tips to help you improve your score:
1. Open 3-5 Revolving Credit Accounts
Revolving credit, such as credit cards, can help you improve your credit scores significantly. For those with limited credit history, obtaining a large loan may be challenging; therefore, a secured credit card like Open Sky or Credit Builder Card is recommended. Revolving credit contributes up to 35% of your overall credit score, and timely payments can reflect improvements in your score within 2-4 months. It's best to limit the use of the card to small purchases like gas or groceries and ensure that your balance stays at $5-$10 each time you make a payment.
2. Raise Your Credit Limits
Increasing your credit card limit can improve your overall credit limits and lower your credit utilization percentage, which can significantly affect your credit score. Different credit card issuers have varying processes, but a credit limit increase request usually involves information about your current income. Generally, great payment history of 7-15 months is required before a credit limit increase is granted.
3. Pay Down Your Balances
Keeping your credit card balance low and close to zero is essential in enhancing your credit score. You don't have to use your credit cards every month, so I suggest only using them for small purchases. At the end of the month, leave a $1-$5 balance on your card and pay it in full. If you are currently facing high balances, make a plan to take a portion of your income each month to pay off your card balance and ultimately stop using your card. This decision will limit your credit card usage and help you avoid high-interest rates. Remember, your credit card spending habits play a crucial role in your overall credit score.
Tips from Joe on Improving Your Credit Score
Let's face it, many of us have experienced poor credit scores. However, if you are serious about improving your current credit situation, devoting time and effort to fixing it will result in significant changes in your credit score in a short period. It's common for people with bad credit to believe that having good credit is impossible. However, developing an excellent credit score requires hard work, determination, and a willingness to prioritize your credit and spending habits. Start by creating a budget and identifying bad spending habits to reflect positively on your credit score. If you need guidance and assistance with your credit score or require credit repair services, don't hesitate to contact us today at www.asapcreditrepairusa.com. This article will provide you with helpful insights on credit.
Here are the key takeaways:
Improving your credit situation requires a serious commitment to put in the time and effort necessary.
Many people with bad credit believe that having good credit is impossible- it's not!
Developing a great credit score requires prioritizing your credit and spending habits.
Creating a budget and addressing poor spending habits are great ways to begin the process of improving your credit score.
Contact www.asapcreditrepairusa.com for any credit score inquiries and repair services.