Did you know that credit scores have 30 different levels? It's a fact that many people are not aware of when searching for the best credit score. With so much information available on Google, it can be challenging to distinguish which sources are helpful and which can lead you down a confusing path. That's where I come in. My name is Joe Mahlow, and for over fifteen years, I have been providing financial literacy and credit repair solutions to individuals. My aim is to provide valuable insights on credit scores so that you can make informed decisions about your financial future. With my guidance, thousands of clients have improved their credit scores, and I am thrilled to share my expertise with you. So let's get started!

Contents:

Different Types of Credit Scores: FICO and Vantage

Understanding Good Credit Scores

Determining the Optimal Credit Score Required to Qualify for a Mortgage Loan

Determining the Appropriate Credit Score for Vehicle Purchase

Ways to Increase Your Credit Score

Joe's Tips for Improving Your Credit Score

Different Types of Credit Scores: FICO and Vantage

To understand credit scoring models better, it is important to know that there are two main models: FICO and Vantage. Each has unique criteria for calculating creditworthiness, which you should understand to improve your score.

FICO Credit Score

The FICO credit scoring model is widespread and has eight different models, ranging from FICO 2 to FICO 10. This offers a range of scores based on your credit report. Different lenders will pull a specific FICO report that they think is appropriate for their need. For example, while a mortgage lender will pull a FICO 5 report, a credit card company is likely to pull a FICO 8 report. Each FICO score emphasizes particular areas of a credit report, so it weighs those factors differently. Mortgage history is the main factor that influences a FICO 5 score, whereas credit card history impacts a FICO 8 score the most.

Vantage Credit Score

Equifax, Experian, and TransUnion created Vantage Score as a rival to FICO. Although not yet widely adopted for loan applications, Vantage works well for personal loans and auto loans. Vantage uses an algorithm to calculate an individual's score based on their credit history.

Is Vantage Score Accurate?

Credit reports show both FICO and Vantage scores, which usually have different results. It is essential to monitor both scores. The Vantage Score is accurate as a general idea of your FICO score, but it is not widely used for lending purposes. Therefore, it may vary significantly from the actual score used by lenders. In the ever-evolving financial landscape, the Vantage model is expected to gain greater adoption, given its ability to offer a better scoring system based on current standards.

Understanding Good Credit Scores

Credit scores are essential indicators that lenders use to judge your creditworthiness. Scores for both the FICO and Vantage models range from 350 to 850, with 350 being the worst credit score you can have and 850 being the best score. Here are some vital thresholds you need to keep in mind throughout your credit-building journey:

1. 620 or below:

This credit score is considered bad credit. If you find yourself below the threshold, you most likely have some adverse credit history, high-balance credit card accounts, or no credit cards. To improve your credit score, make timely payments and have ten active revolving credit accounts open. Secured credit cards like the Credit Builder Card or OpenSky Credit Card can also help you build your credit. Once you reach the 620 credit score range, you can start qualifying for an FHA home mortgage.

2. 640-680:

This credit score range is considered fair for good credit. Scores in this range indicate that you have established credit, but you may have some derogatory marks or accounts on your credit, high balances on your credit cards, or newly opened accounts that can temporarily drop your score. If you're in this range, don’t worry; your score will return with time.

3. 740+:

Any credit score over 740 is considered "super-prime" and results in the best interest rates for most loans. Congratulations if you have over a 740 credit score because only 20% of the US population has this score. Always pay your accounts on time, and keep your revolving credit card accounts paid to maintain your credit score in good shape.

Determining the Optimal Credit Score Required to Qualify for a Mortgage Loan

The credit score needed to buy a house varies based on the type of mortgage a homebuyer is considering. While many of the requirements and guidelines for mortgage loans are similar due to government backing and federal regulation, individual mortgage programs possess different qualifying criteria. The most common types of mortgage loans include conventional loans, FHA loans, and VA loans.

1. Conventional Loans

Conventional loans, unlike other loans, do not necessitate Private Mortgage Insurance (PMI), which is included in your downpayment or monthly payment. PMI is a type of insurance that insures the lender in case you default on your loan. Moreover, these loans frequently present lower downpayment requirements and preferable interest rates. 640 is typically the minimum credit score requirement for conventional loans, and the debt-to-debt ratio cannot exceed 43%.

2. FHA Loan

The credit score required for FHA mortgage loans usually range between 580 and 619. Due to different terms and conditions from one program to another, compare and contrast multiple lenders to determine the ideal financial option for you if you are within the credit score limits. Borrowers must pay PMI for a minimum of 11 years, and the debt-to-income ratio may be as high as 50%, so FHA loans may be accessible to individuals who have a lower income and are interested in purchasing a home. The downpayment requirement for an FHA loan is as low as 3.5% of the purchase price, making it more affordable than a conventional loan. However, the mortgage normally has a higher interest rate.

3. VA Loan

Although a specific credit score is not required for a VA loan, lenders scrutinize past loans that have been defaulted on and government debts that are past-due while pre-qualifying homebuyers. One must meet the following criteria to be eligible for a VA loan: serve in the United States Military or serve 90 consecutive days during wartime, serve in the National Guard for six years, or have a spouse who died during active military duty. The VA loan- which does not require a downpayment and has favorable interest rates, is a mortgage that is a perfect way of giving back to members of the military.

Determining the Appropriate Credit Score for Vehicle Purchase

When purchasing a car, your credit history holds more weight than your credit score. While a higher credit score is advantageous, it has minimal impact on your interest rate qualification. A comprehensive credit check analyzes your past and current credit history to determine the risk involved in granting credit. An individual with a history of late payments or repossession will find loan approval challenging, while those without such negative credit items can qualify with ease. Special finance lenders qualify loan applicants with poor credit, but they impose strict conditions such as a higher down payment and dealership fees. The dealership may also dictate the chosen vehicle due to a higher markup to cover the fee. A customer can increase their leverage when buying a car on credit by providing a down payment or having equity.

Credit Score Range for New Vehicles

There is no exact credit score requirement for loan approval. A score above 680 is technically considered ideal, but other factors impact the interest rate. Scores below 680 indicate a higher risk to financiers, increasing the interest rates. The difference in credit score affects the amount of interest paid on the loan as seen below:

1. A person with a 720 credit score or above will pay approximately $5,500 in interest on the loan.

2. A person with a credit score of 680 or above will pay approximately $6,600 in interest on the loan.

3. A person with a credit score of 650 or above will pay approximately $8,100 in interest on the loan.

4. A person with a credit score of 615 or above will pay approximately $10,200 in interest on the loan.

5. A person with a credit score of 580 or above will pay approximately $13,900 in interest on the loan.

6. A person with a credit score of less than 580 will pay approximately $15,300 in interest on the loan.

These figures demonstrate that the higher your credit score, the less interest you'll pay, affecting your overall credit score positively.

Ways to Increase Your Credit Score

Improving your credit score takes time and effort. It is a gradual process that requires patience and discipline. To raise your credit score, consider doing the following:

1. Apply for 3-5 revolving credit accounts:

Revolving credit can help maximize your credit score. It is easier to obtain approval for a credit card instead of a large loan, especially for those with limited credit or looking to rebuild credit. A secured credit card like Open Sky or Credit Builder Card's can be an excellent starting point as they focus on the ability to pay the card on time. Revolving credit makes up 30-35% of your overall credit score, and it can take 2-4 months to reflect on your score. Always make sure to pay your balance on time and limit usage to small purchases like gas or groceries.

2. Request a credit limit increase:

Ask for a credit limit increase for your active revolving credit card accounts. This can help lower your credit utilization percentage and increase your overall credit limits. Different credit card companies have various processes, but generally, you can request it online or by phone. Typically, a period of 7-15 months of excellent payment history is essential before getting approval.

3. Keep balances low and close to zero:

Avoid having high balances on your credit cards. Use credit cards sparingly, and if possible, leave a $1-5 balance when paying your bills. In case you have high balances, make a game plan to pay a certain percentage of your paycheck each month to minimize the outstanding balance. Limiting credit card usage is critical because it significantly impacts your credit score, and most of your payments will go towards interest, not the principal.

Joe's Tips for Improving Your Credit Score

Let's face it, most of us have experienced periods of less-than-ideal credit. However, it's important to take your current credit situation seriously and put the necessary time and effort into improving it. Don't fall into the trap of thinking that bad credit is a lifelong sentence; with hard work, you can see significant improvements in your credit score relatively quickly. Unfortunately, many people with bad credit resign themselves to this fate and assume they can never have good credit again. But the truth is, building a great credit score takes effort, and those who prioritize their credit and spending habits will come out on top. Here are a few tips to get started:

1. Create a budget to better manage your finances and identify areas where you can cut back.

2. Work on fixing any bad spending habits that might be negatively impacting your credit score.

3. Remember that improving your credit score is a process that takes time and commitment.

If you need help with credit repair or guidance on improving your credit score, don't hesitate to contact my office today at www.asapcreditrepairusa.com. This article is here to provide you with a better understanding of credit and to help you take control of your financial future.