My sister recently signed a contract to buy a home. Given the market and interest rates, she got a great deal. And she’s financing the purchase with an FHA loan. So it seemed timely to talk about the minimum credit score you need to qualify for an FHA mortgage.

As a quick review, an FHA loan is a mortgage backed by the Federal Housing Administration (which is part of HUD). A big advantage of an FHA mortgage is that the required down payment is typically a lot lower than other mortgages. While the down payment does vary depending on the exact FHA program, 3.5% of the purchase price is common. And for our purposes today, the required credit score is also significantly lower than what most would consider to be a good score. The credit score requirements differ depending on several factors.

First, let’s consider the requirements for maximum FHA financing. The most that the FHA will finance is 96.5% of a home’s value. (In lender parlance, this is expressed as 96.5% loan to value ratio.) This means that an applicant will have to have 3.5% on hand to use for a down payment. In order to receive this sort of loan, an applicant must have a credit score of at least 580.

Other applicants may be able to qualify for loans with smaller financing ratios. Applicants with a credit score between 500 and 579 qualify for an FHA loan, but are required to make a 10% down payment instead of 3.5%. Applicants with scores below 500 are not eligible for FHA-insured financing.

Even with the minimum FICO score requirements, there are certain other requirements to an FHA backed loan. Here’s a list of these requirements an FHA loan applicant needs to meet:

• A steady employment history for at least two years. Lenders like to see that applicants are stable, which is why steady job history is a requirement for FHA backed loans.
• Your income must have remained steady or risen over the last two years. FHA backed loans have maximums based on your income, so you must prove that your income is consistent and predictable.
• You must have fewer than two thirty-day late payments.
• Any bankruptcy on your record must be at minimum two years old. Regardless of how long ago the bankruptcy was, you must have good credit for the most recent last two years.
• Any foreclosure you’ve had must be at minimum three years old. Also, you must have good credit for the past three years.
• By the time you apply for a loan, any state tax liens you have must be paid. Federal liens, on the other hand, needn’t be paid if you can show that you’ll be able to pay both the payment on the lien and the mortgage payment on your FHA backed loan.

To get an idea of what amount you can borrow with an FHA backed loan, your mortgage payment must be at or below about 30 percent of your total monthly gross income. For example, if your household income is $50,000 per year ($4,166 per month), your maximum monthly mortgage would be approximately $1,250. What kind of house that payment could buy would depend on market conditions, the relative value of homes in your area, and mortgage interest rates at the time. In a high-priced market, that might barely buy a studio condominium. In other areas, it could buy a four bedroom single family home.

Keep in mind that FHA guidelines do change form time to time. If you’re considering an FHA backed loan, check FHA.gov for resources and for approved lenders in your area. When you’re ready, apply to several lenders at the same time. If you’re approved by more than one, take the best rate offer to the loan officer at the other lenders who approved your application and ask if they can beat the offered rate. Remember, you’re paying a premium to insure your lender against risk in the event of foreclosure. Make lenders compete for your business and take the best rate. Even a small difference in interest rates can add or subtract thousands to the amount you’ll pay over the life of the loan.

Trying to figure out the best way to manage your money takes some careful thought. One money management question we face everyday is deceptively simple–should you pay with cash or credit.

On the surface the choice between paying with cash or using a credit card seems straightforward. Many of us make this decision based on practical considerations like whether you have the case on hand, the credit limit on your card, the amount of the purchase, and so forth. I tend to use credit cards for just about everything because of the rewards, convenience, and security.

There are benefits to using both that we will discuss in this article. There is one main consideration, however, to always keep in mind. If you use a credit card for a purchase, will you pay off your balance in full each month? Your answer to this question will go a long way to helping you determine if you should use Cash or Credit on your next purchase.

Assuming you pay your credit cards in full each month, here are some factors to consider when making the choice between cash and credit.

Money Management

Spend Less with Cash

The idea that you spend less when paying with cash has been around forever. There is just something about actually seeing the cash leave your hand that has the ability to keep our spending in check. In fact, many studies have confirmed that we tend to spend more when we pay with credit than we do when we pay for cash (e.g., Always Leave Home Without It: A Further Investigation
of the Credit-Card Effect on Willingness to Pay (pdf file)).

While these studies suggest we should pay with cash, there is one big caveat to keep in mind. There are some things that we buy where cash versus credit won’t make a bit of difference. For example, I use a credit card to pay my cell phone bill each month, but I don’t spend more because I choose to use a credit card. I also use a credit card for gas, but I don’t drive more because of it. But for things like going out to eat, entertainment and shopping, most people do tend to spend less with cash.

Better Tracking with Credit

When it comes to tracking your spending, credit cards (and debit and prepaid cards) take the cake. I’m sure at one time or another we have all tried to manually track our spending by holding onto receipts or writing down every dime we’ve spent. It can be difficult to keep track of our spending when adopting a cash only policy. It’s much easier to track spending when using a credit card. Online accounts do all the work for us and make it easy to use tools like Mint.com.

Interest Free Loan
If you use a credit card and you pay your bill off each month, then you are basically getting an interest free loan for about 20 to 30 days depending on your billing cycle. Called a grace period, most credit cards do not charge you interest if you pay your credit card statement in full each month.

In a similar vein, you could use a card that offers a 0% introductory rate on purchases. Currently, the Citi Platinum Select MasterCard has the best no interest deal on purchases (0% for 21 months).

Security

Lost or Stolen
Most of us don’t like carrying around a big wad of cash because if we lose it then we’re out of luck. For this reason, credit cards offer more security. Especially when planning to make a big purchase, it’s just much safer and easier to use credit. Cash can’t be replaced, however, if you lose your credit card you are protected under federal law. If your credit card is lost or stolen and someone uses it then the most you are required to pay is $50.

Purchase Protections
Many credit cards offer additional purchase protections and warranties to their card users. These protection services come into play when something goes wrong with your purchase. These protections may include extended warranties, protection against accidental damage, and the ability to return items that the retailer won’t accept. Each card company works differently and you have to review the rules for your card. But, the point is with a credit card your purchases might be protected. This isn’t an option when using cash.

Online Purchases
It’s definitely more convenient to shop online with a credit card. There are some companies that allow you to send them a check for your payment. However, if you shop online with a credit card and something goes wrong with the purchase, you have the option to dispute the charge. If you pay with a check there isn’t a way to dispute the charge. Even with a debit card purchase the dispute process can take longer.

Rewards

Free Money
There’s no reward for using cash. However, with a rewards credit card you are basically earning free money. Whether you use a Cash Back, Points, or Miles card, you earn something back on the purchases you make.

As you can tell, I’m partial to paying with credit. But as I noted above, this all hinges on paying off your credit card bills in full each and every month. If you don’t pay your balance off in full, then you will be charged interest that easily wipes out the rewards you can earn from a card.

Photo via Flickr: Louish Pixel

Is layaway smart? According to Senator Charles Schumer (NY) layaway programs are deceptive and misleading. Senator Schumer is prepared to take on layaway programs with the same force that he used to take on the credit card companies. Schumer is the one who put the legislation in place that now requires credit card companies to provide consumers with upfront terms and conditions in the form of what’s called the Schumer Box.

Those that support layaway say that it’s a better option than using credit cards. There is no interest for putting items on layaway, and they help you avoid going deeper into debt.

There is, however, a cost to using layaway services. Virtually all such programs charge a service fee that consumers must pay, along with a down payment. Typically, service fees range from about $5 to $10 dollars and the down payment is a percentage of your order total (typically about 10%). In addition, there is a fee if you cancel the layaway contract.

Layaway isn’t a new concept. I remember my mom putting large purchases and Christmas gifts on layaway. Back then, fewer people carried credit cards, so layaway was the only option if you didn’t have the cash. I had thought layaway programs were a thing of the past. But some major retailers like WalMart and Toys R Us have brought back layaway for the holidays. And other stores like TJ Maxx and KMart always offer layaway to their customers.

So I put together a list of 5 popular retail stores to compare their layaway programs. For each store you’ll find answers to three key questions: (1) how much does it cost, (2) how big of a down payment must you make, and (3) how much does it cost to cancel.

TJ Maxx Layaway Plan

Not all TJ Maxx (and Marshal’s) stores offer layaway, but for those that do they allow you to put your items on layaway for up to 30 days. The minimum payment they require is $10 or 10% of the purchase – whichever is greater. They will hold your items for a 30 day period and you can pay on your items at the store – there is no set payment schedule. If you decide to cancel your layaway there is a $5 cancellation fee and you will be refunded for the total amount you paid towards your purchase (minus the $5 fee). There are some items that can’t be placed on layaway like furniture, jewelry, and food.
If you cancel – $10
If you don’t cancel – $5 + items

KMart Layaway Plan

KMart’s layaway program is unique because you can shop online or in the stores. All the fees are based on which payment plan you choose – the 8 week or 12 week payment plan. Your layaway item(s) will require a down payment of $10 or 15% for the 8 week plan or $30 or 15% for the 12 week plan. The service fee for the 8 week plan is $5 and the fee for the 12 week plan is $10. In order to be eligible for the 12 week plan your purchase has to be $300 or more. You make your payment online or in the store every two weeks. If you cancel your layaway you will receive a refund of your payments minus the service fee ($5 or $10) and cancellation fee ($10). The KMart layaway program can be used on items in the following categories: Clothing, Electronics, Toys, Appliances, Jewelry, Home, Lawn and Garden, Outdoor Living, and Bedding.
If you cancel – $10 or $20 (based on plan)
If you don’t cancel – $10 or $20 (based on plan) + items

WalMart Layaway Plan

WalMart allows you to put electronics and toys on layaway during the holidays (Oct. 17 – Dec. 16). Their program is pretty straightforward. There is a $5 service fee with a 10% down payment. Your purchase must be $50 or more with each item being at least $15. If you cancel your layaway you will be charged a $10 fee and you won’t be refunded the $5 service fee. Layaway is only available for in store purchases and layaway is not offered on Black Friday.
If you cancel – $15
If you don’t cancel – $5 + items

Toys R Us Layaway Plan

Toys R Us offers different types of in store layaway plans: All Toy Layaway, Large Toy Layaway, Electronics Layaway, and Juvenile Layaway. All layaway works the same and you are required to make a deposit of at least 20% of the total price of your order along with the a $5 service fee. If your items requires shipping charges, they are due at the time of layaway. You may make payments at any time, but 50% of the total price of your order must be paid within 45 days and the total price of your order must be paid within three months. If it’s during the holidays, then there is a “Holiday Cutoff” time in effect. If you decide to cancel your layaway you will be charged a $10 Cancellation Fee.
If you cancel – $15
If you don’t cancel – $5 + items

Sears Layaway Plan

Sears also offers layaway for online purchases and store purchase. They offer both an 8 week plan and a 12 week plan. Your layaway item(s) will require a down payment of $20 or 20% for the 8 week plan and $35 or 20% for the 12 week plan. There is a service fee and it is determined by the payment plan you choose. The service fee for the 8 week plan is $5 and the fee for the 12 week plan is $10. In order to be eligible for the 12 week plan your purchase has to be $400 or more and is only available for in store purchases. You make your payment online or in the store every two weeks. If you cancel your layaway you will receive a refund of your payments minus the Service ($5 or $10) and Cancellation fees of $15.
If you cancel – $10 or $20 (based on plan)
If you don’t cancel – $5 or $10 + items

Here’s a side-by-side comparison chart of the 5 layaway programs:

Store	Service Fee	Down Payment	Length of Layaway	Payment Schedule	Cancellation Fee
TJ Maxx/ Marshal's	$5 (non-refundable)	$10 or 10% (plus service fee)	30 Days	Whenever you want	$5
KMart	$5 or $10 (non-refundable)	$10 or 10% - $15 or 10% (includes service fee)	8 or 12 weeks	Bi-Weekly	$5 or $10
WalMart	$5 (non-refundable)	10% (plus service fee)	Oct. 17 – Dec. 16	Whenever you want	$10
Toys R Us	$5 (non-refundable)	20% (plus service fee)	3 months (50% must be paid within 45 days)	Whenever you want	$10
Sears	$15	$20 or 20% - $35 or 20% (includes service fee)	8 weeks or 12 weeks	Bi-Weekly	$15 (plus non-refundable service fee)

It wasn’t until a few years ago that a consumer could obtain their credit score without entering their credit card information.  Most credit monitoring services would offer a “free trial”, ready to charge the day after the trial expires.  Now, anyone can obtain their  Experian credit score for free, without entering payment information by signing up for Credit Sesame.

Experian is one of the three major credit bureaus. Included in your free credit score with Credit Sesame is a credit profile which breaks down why you have the score you do.  No full credit report is included with this offer and the folks at Credit Sesame won’t try to sell you one, so if you need your once a year free copy, visit www.AnnualCreditReport.com (which is what they recommend too).

Credit Sesame Landing & Tools

Credit Sesame is still fairly new, so the design and tools of the site are not as advanced or developed as Credit Karma or Quizzle (you can check out these options in our review of How To Get Your Credit Score without a Credit Card).  But that’s also a good thing because the amount of advertising you see is minimal.  If you stay focused on your credit score and avoid the up-sells, you’ll never pay a penny for knowing your credit score.

Opening up a Credit Sesame account provides you access to a few different areas to the site.  Each one requires a little bit of information about your financial status, which then leads to a set of goals or recommendations from Credit Sesame.

• Overview – The screenshot above shows you what the overview tab looks like.  It contains your Experian credit score, revolving monthly debt and your home value if you’ve got one.  The debt amount is pulled straight from your Experian credit report, but if the information is incorrect, you can edit the amounts.
  
• My Finances – An overview of your credit score can be found here; details about why you have a good or bad credit score and what you can do to improve it.  A chart is kept here of your credit score (since you opened your account with Credit Sesame) as well as a chart of your credit usage.
• My Goals – After you enter your goals, Credit Sesame will provide a bunch of recommendations on how to make them happen.  The main focus of this section is to pay down your debt, secure a home loan and manage your current credit card balances.
• Advice – If you’re looking for a few other products to improve your credit score, this is where you’ll find them.  Even though Credit Sesame provides advice throughout the site, the central hub is under this heading and unless you fill out the forms located in the other three sections, this will be blank … so get started.

I never knew just how important my credit score was until I needed it.  By then, I had already tanked my credit history. When I applied for my first credit card out of college, I learned my credit score was 414.  For the last two years, I check my credit score at least once a week because one day, I hope to own a house and a 400 credit score is not going to get it done.

Knowing your credit score is important for a variety of reasons, but the most important of which is just how much money it can save you.  Americans with an excellent credit score pay thousands of dollars less on their mortgage and credit cards every year when compared to those with poor credit. When you add the savings up over the course of a lifetime, it’s massive.  Sign-up for Credit Sesame now and start monitoring your credit … for free.

Last week I helped a family member get a copy of their credit report and credit score. One thing they found confusing was just what the difference was between the two.

Contrary to what many believe, a credit report and a credit score are not one and the same. While they are variations on your overall financial health, they are distinctly separate instruments. A credit report is just that, a detailed “report” of your credit history. And a credit score is an actual number. And how you get your credit scores and credit reports (and how much they cost) are also different. Here’s an up-close look at both and how they relate.

Credit Reports vs. Credit Scores

Credit Reports

A credit report is a detailed view of how you have historically used credit. It is used by anyone who is thinking of loaning you money and is used to assess how responsible you are with things like credit cards, mortgages, car loans, and so on.

You credit report contains information such as the following:

• Identifying Information: Your name, address, Social Security number, date of birth and employment information are part of your credit report and are used to identify you. While this information is not used to calculate your FICO score, it’s still important. When you review your credit report, you want to make sure this information is correct, as errors can occur when your identity has been stolen.
• Credit Accounts: From credit cards to mortgages, car loans to school loans, lenders report on each account you have established with them. Information reported includes the type of account (credit card, auto loan, mortgage, etc), the date you opened the account, your credit limit or loan amount, the account balance and your payment history.
• Credit Inquiries: When you apply for a loan, you give the lender permission to get a copy of your credit report. The result is that an inquiry appears on your credit report. The inquiries section contains a list of everyone who accessed your credit report within the last two years. The report you see lists both “voluntary” inquiries (also called hard pulls) resulting from your own requests for credit, and “involuntary” inquires (or soft pulls), which occur, for example, when a lender pulls your credit history to offer a pre-approved credit card.
• Public Record and Collection Items: Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

In short, your credit report contains a history of how you have handled credit, and generally represents most of the information a creditor needs to determine whether you are a good risk or a bad risk.

Equifax, Experian, and TransUnion are the big three credit reporting companies. You can request a free credit report every 12 months from any of these national credit reporting agencies, and annualcreditreport.com makes it extremely easy to do so. This way, you can to make sure all the information on file is correct and that there are no accounts listed that you did not initiate.

FICO Credit Scores

Credit scores assign a numerical value to the above information. This number ranges from 300-850. You want a higher score. This tells lenders that if they lend you money, you’re “good for it.” The rates you receive on mortgages and such will also be lower the higher your credit score. Your credit score can also impact the cost of insurance.

The most commonly used credit score is one created by Fair Isaac Corporation, called a FICO score. Equifax, Experian, and TransUnion have their own version of a credit score, but FICO is the industry standard.

Your FICO score is determined based on the following data:

Payment History = 35%
Amounts Owed = 30%
Length of Credit History = 15%
New Credit = 10%
Types of Credit Used = 10%

It’s important to note that for some people, certain factors are weighted more than others. If you’ve had trouble in the past with paying on time, for example, payment history counts more going forward.

Photo credit: WingedWolf

So you have an unpaid traffic ticket. That’s not the crime of the century. But based on an article I read this week in the Washington Post, it could have significant ramifications for your credit score. And yes, it could cost you $65,738 or more in extra interest payments. Here’s the deal.

Ashley Halsey III reported in the Post that city governments are turning to a new revenue source–collecting unpaid parking and traffic tickets. The District of Columbia, for example, has $355 million in unpaid fines. And that pales in comparison to the $680 million New York City is owed ($58 million in Milwaukee, $30 million in Detroit, and the list goes on). Many of these municipalities are turning these unpaid tickets over to collection agencies.

And here’s the kicker. If you fail to pay, the collection agencies will report the unpaid fine to the credit bureaus.

Now at first you might be thinking that an unpaid fine of $50 or $100 won’t have much impact on your score. Think again. According to Barry Paperno of Fair Isaac Corp. (a/k/a FICO), someone with a credit score of 680 could lose about 50 points. And it gets worse. Someone with a good credit score of 780 could drop as many as 125 points.

To put those numbers in perspective, let’s look at how a score of 780 versus 655 would affect your mortgage rates. As I’ve written before, your credit score has a big impact on mortgage rates. And according to a really handy calculator from MyFICO, a credit score of 780 nets you a rate of 3.68% APR while 655 raises the rate to 4.723%. On a $300,000 mortgage for 30 years, this seemingly small increase in the rate will cost you $65,738 (click the image to enlarge):

So what’s the moral of this story? Pay your parking tickets!

(Photo Credit: rknickme)

Free credit reports are nothing new. But as we’ve have written before, while you can get your free report at AnnualCreditReport.com, it won’t come with your credit score.  A company called Privacy Guard, however, just launched a 30-day trial for $1 that allows users to check their triple credit report and score. So I decided to test them out for myself.  To be honest, I’m quite impressed with the layout of the program.

Signing up for the 30-day trial

The process of signing up for the 30-day trial was in two parts.  First, I was required to enter all of my personal information like name, address and phone number. Once finished, I set up my login and password for www.PrivacyGuard.com and was charged $1 for the 30-day trial.

Part two was completed after I logged into my new account and set up my social security number.  I was asked four security questions to ensure that the credit profile they pulled belonged to me. When I answered all questions successfully, my credit reports and scores appeared.  The entire process took about five minutes to complete, which is just about how long any other credit report or monitoring service takes to get going.

Privacy Guard Tools and Interface

As you can see from the screenshot above, this is what the website looks like after you’ve successfully logged into your account.  I’m focusing on the two credit sections because for a guy like me with 30+ accounts and a lot of delinquencies over the years, I’ll have my work cut out for me just in these areas.

The first thing I notice when checking my credit scores is that they’re pretty close to each other, which is good.  When you have very different credit scores (sometimes a 100 point difference) that usually means some missing or inaccurate information is somewhere in your credit profile.  Then, after I’ve taken a glance at my credit scores, it’s time to hit the meat of this $1 trial … the credit reports.

When you open your credit report, it loads in a new window and provides you a ton of information about your reports from the three major bureaus.  I found one section particularly interesting, which showed me the differences in my credit reports and whether or not this was normal amongst most Americans.

Privacy Guard is kind enough to provide me with the specific details on which information is different in each report and allows me to print out a .pdf that I can mail in to the credit bureaus to update or challenge the listed information.  I have every intention of making sure each bureau has 100% accurate information and there’s even a few creditors which added incorrect deliquencies.

Why your credit is extremely important

Every once in a while, I like to take a look at my credit report and score from the three major credit bureaus to make sure I’m on the right track.  In under a year, I plan to own my very first home. And in order to do so, I’m hopeful to get my credit score out of the low 600′s to the high 600′s.  I’ve already been able to increase my credit score more than 150 points in the last 24 months, so another 60 points in 10 months is a goal I think I can acheive.

Privacy Guard and their 30-day $1 trial is a perfect way to get a head start on checking your credit reports and making sure every piece of information you find is accurate.  You can bet that tomorrow, I’ll be disputing a few things and updating a few others so that when it comes time to secure that mortgage, creditors see what their supposed to.

• To sign up, visit www.PrivacyGuard.com and start your 30-day trial for $1
• To cancel, log into your account, select the “My Account” tab and choose “click here to cancel my benefits”

When it comes to mortgages and credit scores, there are two really important questions to ask:

• What credit score do I need to qualify for a mortgage?
• What credit score do I need to get the lowest interest rate on a mortgage?

These different but related questions are important if you are looking to buy a home. And the second question is particularly important. With a high FICO score, you can literally save tens of thousands of dollars in interest over the life of a home loan. So let’s take a look at both questions. And if you don’t know you score, be sure to get you free credit score.

What credit score do you need to qualify for a mortgage?

The first thing to keep in mind is that qualifying for a mortgage involves a lot more than just a credit score. While your FICO score is a very important ingredient, it is just one factor. Lenders also look at your income and level of debt, among other things.

As a rule of thumb, however, a credit score below 620 will make buying a home very difficult. A FICO score below 620 is considered sub-prime. In the past there were mortgage companies that specialized in sub-prime mortgages. Because of the challenges in the credit market over the last year or so, however, sub-prime loans have become difficult if not impossible to obtain.

A FICO score between 620 and 650 is considered fair to good credit. But keep in mind, this range of credit scores does not guarantee you will qualify for a mortgage, and if you do qualify, it won’t get you the lowest interest rate possible. Still, to buy a home aim for a score of at least 620, recognizing that other factors weigh in the decision and that some banks may require a higher score.

What credit score do you need to get a low rate mortgage?

It use to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops. To give you an idea, the following table shows current rates by credit score and calculates a monthly principal and interest payment based on a $300,000 loan:

Of course, the interest rates change daily, but the above table gives you an idea of the importance of a high score when you apply for a mortgage. From the top credit score range to the bottom is a difference of more than 1.5 percent. While that may not seem like a lot, it results in a higher payment of more than $250 per month. And over the life of a 30-year mortgage, a top credit score of 760 or higher as compared to a score of 620 will save you about $102,000 in interest payments on a $300,000 mortgage!

You can check out your credit score based on data from all three major credit bureaus with GoFreeCredit.com.  This company offers a 7-day free trial which provides consumers with their triple bureau credit score.

And for a competitive quote on mortgage rates, visit our mortgage rates page.

When I went to law school, the grading scale was bizarre. Unlike the normal 0 to 100 range, where say 90 to 100 was an A, the highest mark you could get was a 92. An ‘A’ ranged from an 86 to 92. A ‘B’ was an 80 to an 85. And this reminds me a lot of credit score ranges.

The other day a friend was telling me his credit score was in the 900s. I told him that was impossible because credit scores ranged from 300 to 850. It turns out, however, that different credit scores have different ranges. So out of curiosity, I dug into the deep recesses of the Internet to bring you the range of credit scores for the various types of scoring models. Let’s start with the familiar FICO score.

FICO Range

The range of scores under the FICO scoring model is 300 to 850. While the folks at FICO don’t assign letter grades to its scores or tell you what score constitutes a “good score”, they do provide some useful information. According to myFICO, the best interest rates on a mortgage go to folks with scores between 760 and 850. Rates then rise as scores fall into the following ranges:

• 760 – 850 (lowest interest rate)
• 700 – 759
• 680 – 699
• 660 – 679
• 640 – 659
• 620 – 639 (highest interest rate)

Here’s a snapshot of these score ranges, along with the estimated interest rates associated with each (monthly payments are based on a $150,000 mortgage):

(Source: myFICO)

Note that the above interest rates change daily, and you can see today’s mortgage rates, which may be higher or lower than what’s listed above.

VantageScore Range

The range of credit scores with VantageScore is probably the closest to a typical grading scale as you’ll find. Oddly, the top score is 990. Why it’s not 1,000 remains a mystery. The complete range of possible scores is 501 to 990. But VantageScore does assign a familiar letter grade to its numerical scores. Here’s the breakdown:

• A: 901—990
• B: 801—900
• C: 701—800
• D: 601—700
• F: 501—600 (High Risk)

(Source: Experian)

Equifax Credit Score Range

Equifax offers its own proprietary scoring model with a range of 280 to 850. Just to confuse matters, Equifax also offers a FICO score to consumers, which is the better choice if you want to see the score most lenders will see.

Experian Plus Score Range

The Experian Plus Score ranges from 330 to 830.

TransRisk New Account Score Range

Like the FICO score, the TransRisk New Accounts Score ranges from 300 to 850.

CE Score Range

While you may not have heard of the CE Score, it was developed by CE Analytics and is used by the likes of Quizzle. According to Quizzle, the CE score ranges from 350 to 850.

With all of these different credit scores and ranges, one question to ask is which one do creditors actually use? While different creditors use different scoring models, FICO is by far the most widely used. You can get more details of the types of credit scores available in our Complete Guide to Credit Scores.

And if I’ve missed any credit score ranges, please let us know in the comments below.

Every FICO credit score is made up of many different parts.  How many accounts you have open, how much credit you are utilizing and whether or not your credit accounts are in good standing all determine that magic 3-digit number.  But one factor that makes up about 10% of your credit score that many people overlook is credit inquires.

A credit inquiry occurs every time you apply for a credit account.  When you apply for credit, you authorize creditors to ask or “inquire” for a copy of your credit report from the major credit bureaus. Whether you are denied or approved for the credit account does not matter. But what does matter is the type of inquiry.  Different types of accounts affect your credit score in different ways and the length between inquires is also of great importance.  With all of the ways that a credit inquiry can affect your credit score, lets define a few key terms and see just how much your score can drop when you are looking for new credit.

First, let’s clarify the difference between a “soft” credit pull and a “hard” credit pull, as we will be discussing how a hard credit pull affects your account.

• A soft pull, also known as an involuntary inquiry, occurs when creditors want to send you pre-approved offers. That credit card solicitation you received in the mail was probably the result of a soft pull on your credit. Potential employers may check your credit as do your existing credit card accounts, both of which would be soft pulls. And if you check your own credit score, that’s considered a soft pull, too. The key is that a soft pull does not affect your credit score in any way.
• A hard pull, also known as a voluntary inquiry, occurs anytime you actively seek credit and fill out an application.  The lender will run your credit report and determine whether to approve your credit application and under what terms. A hard pull on your credit report will affect your credit score.

Next, it’s important to understand that not all hard pulls on your credit report are created equal. For example, applying for multiple revolving accounts such as credit cards in a short period of time represents greater credit risk under the FICO scoring system. Because applying for multiple accounts is viewed as a credit risk, it will negatively impact your credit score.

As an aside, some have used “Credit Card Arbitrage” to avoid the immediate sting of hard pulls on their credit score. The idea behind credit card arbitrage is that you can apply for a lot of credit cards within a short amount of time to take advantage of no interest introductory offers or sign-up bonuses. If you apply for many cards at the same time, the credit card issuers will not see the negative impact of all the inquiries when they evaluate your application. Your score will be negatively impacted once the credit inquires appear on your report, but not before decisions have been made on the credit card applications.

While applying for multiple credit card accounts in a short time period can hurt your credit score, rate shopping for other types of credit is different. For example, you may submit multiple credit applications when shopping for a mortgage, car loan or student loan. Known in the myFICO world as “rate shopping,” the credit scoring system understands that you are shopping for the best rate, not actually applying for multiple mortgages. Assuming you actually open one mortgage, car loan, or student loan account, FICO will treat the multiple applications as just one inquiry.

It’s also important to understand that the impact of credit inquires can vary from one person to the next. The impact can vary depending on what accounts you already have, your current credit score, the length of your credit history and so on. A person with a credit score of 750 that applies for a credit card will not be affected the same way that someone with a 500 credit score is affected when applying for the same credit card. While it’s impossible to exactly predict how an inquiry will affect your score, myFICO does offer a credit score simulator that will give you some idea.

• If you are looking to obtain your triple credit score for free, you can do so by signing up for the free trial at GoFreeCredit.com

One thing to keep in mind is that applying for new credit can also improve your credit score over the long run. Remember that one of the key factors used to determine a FICO score is credit usage (how much you owe as compared to available credit). New accounts increase your available credit, which can be helpful so long as you don’t max out the available credit. When I use myFICO’s credit simulator and assume I open a new credit card account with a $5,000 line of credit, the simulator predicts that my new score will go fall within a range of 10 points lower to 10 points higher than my current score.

As long as you manage your finances appropriately, you should find that credit inquires play a relatively small roll in determining your FICO credit score.  Nevertheless, if you are fighting to improve your credit score, do not take credit applications lightly. Apply for credit with care and only if you really need the credit.