Like many areas of finance, credit scores can “take the stairs up and the elevator down.” Years of hard work to improve a score can be wiped away quickly with just a few bad decisions.

A colleague recently told me that she started her financial journey a bit like I did: taking out loans without much thought to the long-term impacts. She mentioned that she had worked diligently for five years to make every payment on time, build up some savings, and improve her financial situation.

Last year, she took her car in for a tune-up, only to get hit with a $2,500 estimate and a warning that she should stop driving her 10-year-old vehicle immediately. With her recently improved credit scores, she quickly secured a favorable loan from her credit union for a new-to-her, three-year-old vehicle with all the safety bells and whistles to protect her young children while driving.

That would be fine, except that she then opened two other lines of credit in the next six months.

Her credit score has fluctuated quite a bit since then, and she sees herself falling back into old habits. She’s worried that all the work on improving her credit will be wiped away in a snap.

I shared with her last week’s Money Talks, where we took a detailed look at credit scores. I showed you how they work and how they’re calculated, including the four most important factors that can impact a score.

As promised, this week we’re going to put that knowledge to work with some simple, easy-to-follow steps you (and my colleague) can take to significantly improve your credit score if necessary. 

1. Review Your Credit Reports and Scores

The first thing everyone should do is review your current credit scores and credit reports, if you haven’t done so already.

You can access this information by downloading your full credit reports directly from the three credit bureaus: Experian, Equifax, and TransUnion. However, these sites typically charge you to access these reports or sign up for credit monitoring.

Alternatively, you can review your current scores through a credit monitoring service such as Credit Karma. It may also be worth checking with your bank or financial institution, as many now offer free credit scores and reports for their customers.

(Note: You can access your credit reports for free, once per year, from AnnualCreditReport.com. However, this service only includes your credit reports, and not your credit scores.)

The reasons for reviewing your reports and scores are threefold: 

• To assess if your current score needs improvement.
• To determine which of the four most important factors I mentioned last week are hurting your score the most.
• To confirm that there are no obvious mistakes that are unnecessarily bringing down your score.

If you do find a mistake on one or more of your credit reports, you can file a dispute through the three credit bureaus. This can often rapidly improve your score.

You might also sign up for continued credit monitoring through one of the options above. This can alert you to signs of identity theft and future mistakes that can potentially lower your scores. 

2. Always Pay Your Bills on Time

Because both FICO and VantageScore place significant weight on payment history, the most critical thing you can do to improve your credit scores is make all your debt payments on time.

According to Equifax, even a single late payment could lower your score by up to 100 points. And that late payment can continue to impact your score for up to seven years.

If you’ve missed payments in the past (or fear you’re at risk of doing so in the future), you could also sign up for payment reminders or enroll in “auto-pay” to ensure you always pay on time. 

3. Control Your Credit Utilization

Lowering your credit utilization – the percentage of available credit you’re currently using – is the next most important thing you can do to increase your scores.

FICO and VantageScore generally want your credit utilization rate below 30%. However, the highest scores typically have a utilization rate of 10% or less.

This rate generally refers to “revolving” credit – which includes credit cards and any personal or home equity lines of credit. You can calculate it by dividing any revolving debt you currently owe by the total amount available to you.

For example, if your credit cards have a combined spending limit of $10,000 and you currently carry a total balance of $1,000, your credit utilization is 10%.

If your utilization is currently too high, there are several potential ways to lower it.

The most obvious is paying down your debts, while prioritizing those that are closest to their limits.

If you have a consistent payment history, you could request an increase in your card limit or credit line. Assuming your outstanding balance remains the same or goes down, a higher limit will result in a lower utilization rate.

You could also consider making additional payments on your debt each monthly billing cycle. That can lower the outstanding balance reported to FICO and VantageScore between cycles. 

4. Build Your Credit History with Some Help

If your score is low because you don’t yet have a significant credit history, there are several ways to begin building one.

One of the easiest is to apply for a secured credit card. These work similarly to a debit card – where you can generally only spend up to the amount you’ve deposited in advance – but have many of the same credit-score benefits as a traditional credit card. 

Alternatively, you could consider applying for a “credit-builder” loan. These loans work something like a traditional loan in reverse.

Like other loans, you make regular payments to the lender each month. But instead of receiving the money upfront, you only receive your money after you’ve paid the loan off.

You’re essentially just getting your own money back at the end of the term (minus any fees). But you’ll have built credit history and helped improve your credit scores along the way.

Experian and FICO also offer some additional options to help improve your scores.

Experian Boost allows you to link non-credit accounts to your credit report – including utilities, streaming video and music services, etc. – to benefit from on-time payments from those accounts.

Similarly, FICO’s UltraFICO program allows you to link your bank account information – including account balances, transactions, and cash flow – to potentially boost your credit scores.

Finally, if you have a generous friend or family member with a strong credit score, you could ask to become an “authorized user” on one of their existing credit card accounts.

When you’re an authorized user, that card’s history will appear on your credit report and could boost your credit scores as well. 

5. Don’t Close Your Old Accounts

Another easy way to protect your credit scores is to avoid closing older accounts in good standing.

Even if you don’t regularly use these accounts, they can help to maximize your length/age of credit history and minimize your utilization rate. 

6. Consider Getting a Credit Card If You Don’t Already Have One

This one is a bit controversial.

Using a credit card recklessly is one of the surest ways to lower your credit scores. However, credit cards are one of the fastest ways to improve your scores when used responsibly. That’s because they impact many of the scoring factors we covered earlier.

By using a credit card and paying it off on time (and in full) each month, you can build a positive payment history, increase the age/length of your credit history, improve your credit mix, and maintain a low credit utilization rate.

If you’re concerned about overspending, you could also consider getting a card with no annual fee and using it for a single monthly recurring expense, such as a low-cost subscription or membership fee.

You could then enroll your card in auto-pay – to ensure it is paid off on time each month – and then put it away so you won’t be tempted to use it elsewhere.

And as I mentioned before, you could also consider a secured credit card for further protection from overspending. 

7. Do All Your “Rate Shopping” At Once

Credit inquiries are the least important of the four primary factors in your credit score. But they can still make a difference.

Fortunately, FICO and VantageScore generally ignore inquiries made within 30 days before scoring. So, it generally makes sense to “bunch” your applications for new credit whenever possible.

For example, if you’re shopping for a loan from various lenders, you should plan to complete all of your inquiries within that 30-day window. Likewise, if you’re applying for a mortgage but have also been considering a new credit card, you’ll likely get better rates if you apply for both in that same window. 

Patience and Consistency Are Key

Following these relatively simple steps can dramatically improve just about anyone’s credit score. But outside of disputing a serious error on your credit report or paying off a significant amount of debt, you can’t expect most of these improvements to happen overnight.

FICO and VantageScore generally want to see a consistent pattern of responsible credit behavior. So, if you’ve made mistakes in the past, it could take some time to see a significant improvement in your scores. But if you stick with it, I assure you the benefits are well worth the effort.