Five steps to quickly improve your credit score

Your credit score is uniquely yours. As far as banks, lenders and even employers are concerned, it’s the best quick indicator of your individual financial fitness. Many factors go into a credit score, including your payment history, your credit limits, your percentage of available credit and more, as well as big items such as defaults and bankruptcies.

The upshot of a credit score, though, is it can never be too high. The most commonly used measure, the FICO score, ranks you from 300 to 850.

There’s no shame in having a low credit score — people get into credit trouble for lots of reasons — but you do always want to be aiming for 700 (very good) and above to be sure you’re able to access credit at the most favorable rates.

Moving your score significantly in a relatively short period of time is very doable, even in just six months. But how do you get there? What should you focus on? Here are five steps you can take to make big improvements in your credit score.

1. Get your credit reports

That’s right – reports with an s. Your credit performance is gathered, evaluated and reported by three agencies: Equifax, Experian and TransUnion.

To understand what others see when they look at your credit score, it’s important to get all three, as there can be differences among them. The good news is that they’re free. As the Federal Trade Commission says, “The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months..”

Get your free reports at AnnualCreditReport.com. This is a site maintained jointly by the three reporting agencies. You can choose to request all three at once, or stagger your requests across the year to maximize your free access across time. Of course, the agencies will be happy to sell you more frequent access but you may find that the free access suffices for your needs.

Also get your credit scores. Your credit report is a comprehensive look into what goes into your credit score, but the score itself — the three-digit number — does not always come with your free annual credit reports.

Good news, again: you can also get your credit score for free from many credit card companies (check your monthly statement or your online account management area) or, our favorite, CreditKarma, a company that helps people understand and access credit. You can check your credit score anytime once you create a free account.

2. Read your credit reports closely

Do you see anything that surprises you? Are there errors? Do you see any patterns that stand out?

Be objective – look at your credit score as if it belongs to a stranger. Do you sound like a great credit risk, or are there places that you could improve?

Nolo.com has an excellent checklist for a close-reading of your credit report.

You probably won’t find any magic bullets here that will immediately improve your credit score, but the big advantage of such an intensive look your reports is that, whether or not you find errors, you’ll know more about your credit history than before you started. And knowing about your credit score is a critical step in the journey toward improving it.

3. Pay your bills on time

It sounds obvious, but this is where a lot of credit scores go south.

Paying on time is an excellent way to improve your credit score and maintain it over time. Of course, some people pay late because they simply don’t have the cash on hand, but often a late payment can be the result of forgetfulness. So do your future-self a favor and make it easier for bills to be paid on time. Try one of these systems:

• SET UP AUTO PAYMENTS. For any recurring bill, such as a credit card, rent, mortgage or car payment, set up the payment to automatically debit from your checking account. This way, you’ll never forget to make a payment. Login to your credit card’s account area and look for auto payment setup. Even if you plan to pay more than the minimum most months, setting up a minimum-payment autopay assures you won’t be late or hit with a late fee.
• SET UP REMINDERS ON YOUR PHONE. Most of us have smartphones now and all of them have dozens of great reminder apps that can save the day. Check out the App Store for Apple or Google Play for Android for ideas. .
• KEEP A WRITTEN CALENDAR. Write your due-dates on a calendar you keep on your desk or refrigerator door and check it frequently for upcoming payments. It’s not flashy, but it works.

4. Pay more than the minimums to reduce your balances

Another big factor in your credit score is what’s called your credit utilization. If you have a credit card with a $1,000 limit and you have a balance of $950, you have a high utilization of your available credit on that card. Get that balance down to $500 and your story looks much better to the credit agencies. Pay it off completely? Better still.

There are two popular strategies when paying down credit cards: pay off the most expensive first, or pay off the smallest balances first.

• Pay off the most expensive first: Identify the card that has the highest monthly interest costs. This generally means the highest interest rate, but it could also be affected by the amount of your outstanding balance. Under this strategy, your goal is to pay down the card that is costing you the most each month in total dollars of interest. Paying the minimum will take you years (http://www.bankrate.com/calculators/credit-cards/credit-card-minimum-payment.aspx) to pay off your balance, and that’s assuming you stop putting new charges on the card. Paying as much as you can each month on this one card will reduce your balance — and the interest you’re paying on it — much faster.

  Pay off the smallest balances first. This is especially good for people who have a lot of store credit cards which typically have a lower credit limit. As you focus on these cards, you will be reducing your balances and credit utilization across a number of cards at once or one after the other. Instead of just one card reporting more favorable data to the credit bureaus, you could have 2, 3, 5 or more cards sending those good reports that will quickly reflect well on your credit score.

Either way you go, as long as the balances are dropping, you will be likely improving your credit story.

5. Consider debt consolidation

While taking on more debt may seem counter-intuitive when you are working hard to improve your credit score, if you use consolidation carefully — and DON’T refill the original cards with new debt — it can help your score.

Here’s how it works: Imagine that you have $12,000 in debt spread out across four cards, each with a $3,000 limit. You’re maxed out and you’ve implemented savings measures in your personal life already, so you’re not adding more debt to those cards. Assuming you can qualify for a loan, paying off those cards will open up the available credit on four cards to 100%. Here’s the important part: You can’t fill up those cards again with spending. You’ll be in a much worse place.

You need to resist the urge to use those beautiful, debt-free cards. Take three of them and put them in a safe place. You can even cut them up if you need the help to resist temptation.

But whatever you do, don’t cancel them. Even though you don’t use those cards, each month, all three will report to the credit bureaus that you have $0 balance and $3,000 available. They’re working for you, now, instead of the other way around.

The fourth card? Keep that handy for daily use, but use it only for as much as you can pay off in full at the end of your cycle. This gives you the convenience of floating expenses within the month but the credit-benefit of keeping your ongoing status as paid-off each month. Again, credit-bureau gold.

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There you have it. Five steps to a better credit score. It won’t be easy, but it also probably won’t be as hard as you think. And, six or twelve months from today, you and your credit score can be in a much better place.

But don’t wait. Scroll back and click the link to get started with your free credit reports. Your future self will thank you.