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The Ultimate Guide To Getting Your Ideal Credit Score (And Improving Your Financial Situation)

Written By Joshua Proto

The credit score, it’s a number we either love or hate.


A high score can result in quicker loan approvals and better interest rates.


While a low number can prevent you from taking a loan all together and usually points towards a larger problem, a less than ideal financial situation


Some experts might say to strive for an “ideal” credit score of 760, as it represents the mid range of “very good” credit and demonstrates a dependable lending history.


This is great, reasonable advice for the average American that has a credit score of 695, but even that can seem daunting to those with fair or poor credit.


So What is An Ideal Credit Score?

Some experts might say to strive for an “ideal” credit score of 760, as it represents the mid range of “very good” credit and demonstrates a dependable lending history.


This is great, reasonable advice for the average American that has a score of 695, but even that can seem daunting to those with fair or poor credit.


Sometimes, an ideal credit score is just a number that allows you to get a better rate on a car loan or rent your own place without a co-signer and we will get into the details on the thresholds between poor, fair, and good credit in a bit.


Improving your credit score is much easier than people think as credit scores are based on objective data from lender behavior, meaning everyone has the ability to raise their credit score.


And Yes. Even to 760.


I’m here to show you below how you can reach an ideal credit score to open the doors to a flexible financial future.


But before we delve into the “how to” of getting an ideal credit score, it’s crucial to remember that since credit scores are based on objective, factual data, it’s within our power to change them if we understand why we have credit scores and how they are scored. Luckily, the reasons why credit scores were created have noble origins and the major scoring methods are pretty transparent on how they make their scores.






So, Why Do We Have Credit Scores?

Credit Scores started as a way for lenders to reduce the risk in their lending decisions and aid consumers by limiting bias in the decision making process. Before Credit Scores, many lenders took into account race, religion, marital status, and total wealth when deciding who to lend to, which has little to do with if an individual is likely to pay back any given loan.


Now lenders can look at a Credit Score, which represents the accumulated lending behavior of an individual over their credit history.


Ultimately, it’s a win-win for both the lender and the consumer even though it may not always feel like it...


Now Let’s Take A Look At The Major Scoring Methods.


FICO Score

FICO scores are usually the first thing people think of when they think credit scores. The FICO credit score has been around since 1989 and started as a way to add objectivity to the lending process. Lenders were able to prevent bias in their lending decisions by looking at a potential borrower's FICO credit score and not their religion, race, or marital status. Now, over 90% of lenders look at FICO credit scores in their lending decisions.


FICO uses a proprietary method of using credit report data to calculate your score and uses different methods depending on if you’re looking to buy a car, house, or take out a loan. All FICO scores fall between the range of 300-850.


This is what range of FICO scores represent:


In the FICO system, you stop having good credit once your score hits 669 or below, though lenders will usually deny your loans once it’s 580 or less. And remember, this is just what the data shows as a general trend. There are still lenders that could approve a loan for someone with a score of less than 580 as well as lenders that deny someone with a score of 739.


Now let’s take a look at the Vantage Scoring Method.


Vantage Scores

Vantage Scores is a newer scoring method that was created over a decade ago as a joint effort between the three most prominent credit reporting agencies: Equifax, Experian, and TransUnion. These agencies created Vantage Scores to help include consumers that are new to having credit as well as use credit infrequently. Vantage Scores fall into the range of 300-850 as well.


The newest iteration, Vantage Scores 4.0, claims to leverage “machine learning” to give lenders a better picture of a potential borrower's risk profile. The differences between the Vantage Scoring 4.0 and 3.0 methods can be found here.


What Contributes To A Credit Score (And How To Increase It!)

So we looked at the two most common kinds of credit scores, FICO, and Vantage Scores. Since they are two different methods of scoring, you may think they must look at different variables to


Well, this is the breakdown of what makes up your FICO score:


And this is what makes up your Vantage Score:


Vantage Scores

They are both very similar breakdowns, meaning that if we focus on raising one score the other will go up as well as long as we meet the same criteria. These are the 5 components Aldora Capital focuses on when looking to improve a client’s credit score in our Aeolus Credit Repair Program:


  1. Pay Bills On Time
  2. Most of the time it’s easier said than done but is the biggest factors in determining your FICO and Vantage Score. Lenders want to know you’ll be a good investment and reliably pay them back for the money you borrowed.


  3. Debt To Income Ratio
  4. A debt to income ratio, or DTI, is calculated by dividing your monthly debt payments by your monthly gross income. For example, if you pay $2000/month for a mortgage, $500/month for a car payment, and make $4000/month as your gross income, you have a DTI of 62.5%, which is higher than recommended. An ideal DTI to shoot for is 36%.


    Lenders care about this number because they see it as a way to measure how capable you are of paying off your current debt, as well as any new debt you may acquire.


  5. % of Credit Limit Used
  6. Similar to DTI, lenders take a look at the percentage of an individual’s utilized credit. Credit reporting agencies often see you as a potential liability if you have a credit utilization rate above 50%.


  7. Types of Credit
  8. Lenders like to see that you have experience with a variety of debts and can handle them all well. They usually see a mix of installment loans and credit cards that have up to date payment history as a positive indicator for a potential borrower.


  9. Credit History
  10. An individual with 10 years of positive history will have a better score than someone who just opened their first credit card 6 months ago. It’s just a fact. The only way to improve this is to diligently work towards your ideal credit score.


With the components of FICO and Vantage Scores laid out, it’s now possible to develop a strategy for repairing our credit and move towards our ideal credit score. I’d like to share with you the strategies we employ in Aldora Capital’s Aeolus Credit Repair Program


4 Strategies To Make Your Ideal Credit Score

  1. Make A Budget of Income and Expenses
  2. Although making a budget never sounds very glamorous, having an ideal credit score does. Understanding how much money you have coming in and out each month is the first step to determining how big of an impact you can have on changing your credit score.


    Those with incomes higher than their expenses are almost guaranteed to have a higher score in just a few months time, they just have to diligently pay off any outstanding debt.


    Those with expenses higher than their incomes have a bit tougher road ahead of them, though not always. Usually, this points to spending behavior that needs to change. We always conduct an in-depth financial analysis of our clients to pinpoint the sources of their greatest expenses and help them find ways to lower their monthly expense burden.


  3. Fix Delinquent Debt
  4. Not everyone has a perfect credit history and that’s okay, but taking accountability is the first step to earning your ideal credit score. Prioritizing debt that has gone to collections is a key priority and sometimes this debt can be settled for less than full the amount and get taken off of your credit report.


  5. Dispute Problematic Claims
  6. Not everything on your credit report is set in stone and some of it may not be true. Certain marks on your credit report can be removed if submitted in writing. The FTC has a whole article on disputing information on your credit report.


    Clients who work with Aldora Capital can also opt to have us send these letters on your behalf.


  7. Get Total Credit Utilization Down To 30% (and then to 10%!)
  8. Keeping a low utilization rate is the best way to communicate you can handle a large amount of debt. This will also help to lower your DTI.


Conclusion

Although there may not be a globally agreed ideal credit score, looking at the credit score ranges for both FICO and Vantage Score gives us a good idea of what credit scores are prefereed by lenders. Credit Reporting agencies also provide enough data for us to determine how to increase our scores regardless of their starting values. Thankfully, there exist consistent benchmarks that it met, will lead you toward your personal ideal credit score:


  1. Make A Budget of Income and Expenses
  2. Fix Delinquent Debt
  3. Dispute Problematic Claims
  4. Get Total Credit Utilization Down To 30% (and then to 10%!)

You don’t have to keep the same credit score forever.


You have the power to change your credit score and better your financial situation.


What steps are you going to take to make your ideal credit score today?


Last Updated Date: 2018-07-30

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