Compare the Best Cards by Credit Needed

What are the Best Credit Cards By Credit Needed?

When it comes to choosing a credit card, your credit score plays a crucial role in determining the type of card you may qualify for. Whether you have excellent or fair credit or are working on building or rebuilding your credit, credit card options are tailored to your specific financial situation.

Here are some of the best credit cards categorized by credit needed:

What is a Credit Score?

When managing your finances, one term you’re likely to encounter is “credit score.” But what exactly is a credit score?

Simply put, a credit score is a numerical representation of your creditworthiness. It is a three-digit number that helps lenders assess your ability to repay loans and credit card debt. Your credit score is based on information in your credit report, which includes your payment history, outstanding debts, length of credit history, and other factors.

The higher your credit score, the more favorable credit terms and interest rates lenders will offer you. Understanding and maintaining a good credit score is essential for financial success.

Why is a Credit Score Important?

Your credit score plays a crucial role in your financial life. It determines whether you’ll be approved for loans, credit cards, or a rental application. A good credit score demonstrates that you are a responsible borrower and will likely repay your debts on time. This can open up opportunities for better interest rates and favorable loan terms.

On the other hand, a bad credit score can limit your borrowing options, result in higher interest rates, and even make it difficult to secure housing or employment. A credit score is a powerful tool that can greatly impact your financial future.

Understanding the Major Credit Scoring Agencies

Understanding how your credit score is calculated is key to improving and maintaining a good score. While the specific formulas used by credit bureaus may vary, the most commonly used credit scoring model

FICO Score

The FICO Score, developed by the Fair Isaac Corporation, is the most commonly used credit scoring model in the United States. According to the states, over 90% of major lenders rely on FICO Scores when gauging an applicant’s creditworthiness.

FICO scores range from 300 to 850, with a higher score indicating better creditworthiness. They are calculated based on several factors, including payment history, credit utilization, length of credit history, credit mix, and new credit.

FICO Scoring Factors

As mentioned, the factors contributing to a person’s FICO credit score are divided into five categories, each with a different level of importance. These factors are used to calculate a person’s credit score based on the information from their credit report. Here are the categories and their relative importance according to the FICO scoring models123:

• Payment history (35%): This category includes on-time payments, missed payments, accounts sent to collections, and bankruptcy filings.
• Amounts owed (30%): This category considers the total amount of debt, credit utilization ratio, and the number of accounts with balances.
• Length of credit history (15%): The age of the oldest and newest accounts, the average age of all accounts, and the length of time each individual account has been open are considered.
• Credit mix (10%): Managing both installment accounts (e.g., loans) and revolving accounts (e.g., credit cards) responsibly positively impacts the credit score.
• New credit (10%): This category considers the number of recent credit inquiries and the opening date of new accounts.

These five factors collectively determine a person’s FICO credit score, with payment history and amounts owed carrying the most weight in the calculation.

VantageScore

VantageScore is a credit scoring model developed by the three major credit bureaus: Experian, Equifax, and TransUnion. It was created as an alternative to the FICO Score and has recently gained popularity. Like the FICO Score, VantageScore ranges from 300 to 850, with a higher score indicating better creditworthiness.

VantageScore Scoring Factors

The VantageScore credit scoring model considers several factors to determine an individual’s credit score. These factors are weighted differently and include:

• Payment history (40%): The VantageScore model considers factors such as the frequency and severity of delinquencies and adverse public records or collections.
• Credit depth (21%): This factor considers the length of credit history and the mix of credit accounts, including credit cards, retail accounts, installment loans, and mortgages.
• Credit utilization (20%): The credit utilization ratio, or the amount of available credit being used, plays a significant role in the VantageScore model.
• Total balances owed (11%): The total amount of outstanding debt across different types of accounts is considered.
• Recent credit (5%): This factor includes the number and frequency of recently opened accounts and credit inquiries.
• Available credit (3%): This factor includes your total credit limits for your revolving credit accounts.

These factors collectively contribute to an individual’s VantageScore credit score. The VantageScore model provides a comprehensive assessment of an individual’s creditworthiness, similar to the FICO model, but with different weightings for the factors considered.

Differences Between FICO Score and VantageScore

One key factor that differentiates the FICO Score from VantageScore is the data used for scoring. While the FICO Score relies solely on the credit bureaus’ data, VantageScore considers additional alternative data, such as utility payments and rent history. This inclusion of alternative data can be particularly beneficial for individuals with limited credit history.

Another notable difference lies in the credit score range. Both FICO Score and VantageScore have a range of 300 to 850. However, VantageScore goes further by providing letter grades (A, B, C, D, F) to indicate creditworthiness. This grading system makes it easier for consumers to understand their credit standing quickly.

Understanding the Credit Score Range

As noted, FICO Score is the preferred scoring model for more than 90% of lenders. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness. Here’s a breakdown of the credit score ranges and what they mean:

• Excellent (800 to 850): If your credit score falls within this range, you have excellent credit. You will likely be offered the best interest rates and terms on loans and credit cards.
• Very Good (740 to 799): A very good credit score demonstrates responsible financial behavior. You’ll still qualify for favorable interest rates and terms.
• Good (670 to 739): Falling within this range means you have a good credit score. You’ll generally be approved for credit but may not qualify for the best interest rates.
• Fair (580 to 669): A fair credit score indicates some credit issues or limited credit history. You may face challenges getting approved for certain types of credit or may be offered less favorable terms.
• Poor (300 to 579): If your credit score falls within this range, you have poor credit. Improving your score to increase your borrowing options and secure better terms is important.

To provide comprehensive advice, here are the credit score ranges with VantageScore:

• Excellent (780 to 850)
• Good (661 to 779)
• Fair (601 to 660)
• Bad (500 to 500)
• Very poor (300 to 499)

Another credit score you won’t find on the FICO or VantageScore scale: “no credit history.” When someone has “no credit history,” there is no record of their past credit usage and repayment behavior with traditional credit accounts.

What Credit Score Do You Need to Get a Credit Card?

Regardless of your credit health, the good news is that credit cards are available for almost any credit score, including average to poor credit. However, it’s important to note that cards with the most attractive rewards and perks are typically reserved for those with good to excellent credit.

Credit cards for lower credit scores tend to offer smaller rewards, larger annual fees, and significantly higher interest rates on balances. These cards, including secured credit cards, are designed to help establish a strong credit history with on-time payments, modest credit use, and other financially healthy practices.

Tips for Improving Your Credit

If you think your credit score needs improvement, don’t worry. There are steps you can take to boost your creditworthiness. Here are some practical tips for improving your credit score:

• Pay your bills on time: Consistently making on-time payments is one of the most effective ways to improve your credit score. Set up reminders or automatic payments to avoid missing due dates.
• Reduce credit card balances: Aim to keep your balances low, ideally below 30% of your total available credit. Paying down debt can have a positive impact on your score.
• Limit new credit applications: Avoid opening multiple new credit accounts within a short period, which can negatively impact your credit score. Only apply for credit when necessary.
• Keep old accounts open: Closing old accounts may decrease the average age of your credit history, which can lower your credit score. Keep old accounts open, even if you’re not using them regularly.
• Diversify your credit mix: Having a mix of different types of credit, such as credit cards, loans, and mortgages, can positively impact your credit score. However, only take on credit that you can manage responsibly.

Common Misconceptions of Credit Scores

Because credit is so important in our day-to-day lives, it’s common to hear advice from all sides of the spectrum, including from banks, other lenders, and even borrowers. Unfortunately, this leads to misconceptions about credit scores, leading to confusion and misinformation, including:

• Checking your credit score hurts your score: This is false. When you check your own credit score, it’s considered a soft inquiry and does not impact your credit score. However, hard inquiries made by lenders can temporarily lower your score.
• Closing credit cards improves your score: This is not always the case. Closing credit cards can affect your credit utilization ratio and average age of credit history, potentially lowering your credit score. Evaluate the impact before closing accounts.
• Income affects your credit score: Your income is not a direct factor in calculating your credit score. However, it may indirectly influence your ability to manage debt and impact your creditworthiness.
• Only late payments affect your score: While late payments have a significant impact on your credit score, other factors, such as credit utilization and credit mix, also play a role. It’s important to consider all aspects of your credit profile.

Conclusion

Understanding the importance of a credit score is crucial for achieving financial success. Your credit score impacts your borrowing options, interest rates, housing opportunities, and even employment prospects. By familiarizing yourself with how credit scores are calculated, the factors that affect your score, and methods to improve and maintain a good score, you can take control of your financial future. Regularly monitoring your credit score, practicing responsible credit usage, and seeking assistance when needed will set you on the path to financial well-being.