Life is easier when you have a good credit score. You've got a better chance of getting a loan or credit card – and of getting the best interest rates. A good score can even help you get a lower price for car insurance.
What's a good score? Most credit scores range from 300 to 850. FICO is the credit scoring model most commonly used by lenders. According to FICO, if you've got a score of 740 or above, you're doing stellar. Folks in this range are the most likely to get approved for credit, and they will enjoy the lowest interest rates.
A score of 670 to 739 is good, but it might not earn you the lowest interest rates. And a score of 669 or below may get you turned down for credit. Even if you are approved, you'll likely pay higher interest rates than people with better scores.
If you're not happy with your credit score, there are ways to improve it. Try one or more of these tips to turn yours around.
1. Check your credit report
You should do this regularly anyway to look for errors. Your credit report may also clue you into why your credit score is lower than you'd like.
Experian, Equifax and TransUnion are the three main credit bureaus, and you're allowed one free credit report from each of them every year. The easiest way to get your reports is to visit AnnualCreditReport.com, which provides reports from all three bureaus.
Once you have your reports, check them for errors. Do you see accounts marked as late that you remember paying on time? Are there accounts or applications for credit that you don't recognize? You can dispute errors online through the credit bureau websites. But to be safe, write old-fashioned letters to each bureau and send the letters via registered mail. Also ask the creditors that gave the information to the credit bureaus to make corrections.
2. Correct your own past mistakes
Perhaps your own financial gaffes are hurting your credit. Maybe you paid late once or twice last year because you forgot the due date. Call and ask the lender if they will forgive those late payments. Explain why you paid late. If you've otherwise been a good customer, then chances are the lender will remove the late payment from your credit report.
If you have accounts in collections, come up with a plan to pay them off ASAP. Ask the creditor to remove the accounts from your credit report or mark them "paid as agreed." Even if the creditor refuses, having the accounts paid off will still help your credit.
3. Pay all of your bills on time
This is a big deal. Your payment history makes up the biggest component of your credit score. That's why it's so important that you pay on time, every time. Are you forgetful or just busy with life? Set up due date alerts or auto-pay arrangements for your bills. Depending on the biller, you may also be able to choose your due date so it falls near payday.
4. Stay well below your credit limits
Your credit utilization ratio measures how much of your available credit you're using. It's the second most important part of your credit score. The rule of thumb is to keep your credit utilization under 30%. Even better, keep it below 10%.
Your score counts both your overall credit utilization and your utilization for individual accounts. Say your overall utilization is under 30% but you've still got one credit card close to being maxed out. That one account could hurt your credit score and you should work toward bringing that balance down.
5. Pay down your debts
To improve your credit utilization ratio, you need to lower your balances, increase the amount of available credit you have, or both. The best thing is to pay down your balances.
Say the credit limit on all of your credit cards is $10,000 and your balances total $5,000. That means you're using half of your available credit. Paying off $2,000 of debt will lower your credit utilization to 30% and bump your credit score up quickly. Paying off $4,000 and lowering your utilization to 10% would boost your score even further. Any amount you pay would also help your overall financial health.
Tackle balances on your cards with the highest utilization first. This might be relatively easy if you've got retail cards with low credit limits. Putting $200 toward your $300 limit store card can make a big difference.
6. Ask for a credit limit increase
If you can't pay down your existing debt quickly, see if any of your credit card companies will raise your credit limit. But keep in mind that most card issuers will only do this if you've had a good record with them. If you've had late payments in the past year, you may not be able to get the increase.
Also, check your own motivations. Will a higher credit limit tempt you to spend more? If so, don't ask for one. You'll be worse off than if you'd never gotten the credit limit increase.
7. Sign up for a new credit card
If you're new to credit, getting a credit card will help you gain some credit history. That's another important factor in determining your credit score.
You may find, however, that your low credit score is keeping you from getting approved. In that case, look for a secured credit card. With a secured card, you put down a deposit close to or equal to your credit limit. The deposit basically ensures you're not going to default. That's why secured cards are easy to get. Just be sure to get a card that reports your on-time payments to the major credit bureaus.
If your credit score is tanking because you've got too much debt, try to get a balance transfer card with a 0% APR introductory period. That will allow you to transfer your existing debt over and at least give you some relief from interest for a while. It will also improve your credit utilization — as long as you don't ring up new purchases on the card.
8. Keep existing cards open
Canceling cards drops your available credit, which lowers your credit score. One way to keep the card active is to use it for a recurring charge, such as a gym membership or streaming video service. Then pay it off on time every month.
Good credit scores don't happen overnight, but you can improve your score a lot within a few months. Your patience will eventually pay off. Better credit raises your chance of qualifying for loans or credit cards. You should earn lower interest rates, too. Even small improvements may open up options you don't have right now.
Writer: Yasmin Ghahremani is a credit card expert for the award-winning consumer website Wise Bread. Before joining Wise Bread Yasmin was a writer/producer for various outlets such as Time, Discovery Channel, CNBC and CNN.