You will need a good credit score for getting a credit card at low interest or to get a mortgage loan. So it makes sense to check credit score from time to time. People generally never give a thought to their score and might get a rude shock while applying for a loan.

If you are expecting some kind of financing in the near future and don’t feel so good about your scores, you need to act immediately and improve them.

Read: My Credit Score: Why Good or Bad Credit Scores Matter

What is a Credit score?

It is a number indicating your credit history at that time. The score can vary and is calculated based on:

• Your loans
• Debt accounts in the credit report
• Payment history
• Your credit history
• Age of your account
• Balance in the account

Each of the above factors are also given varying weightage, with the major factor being your payment history and your debt level:

• 35% of the score coming from Payment history
• 30% based on your debt levels
• 15% based on the credit history period
• 10% based on inquiries and the credit mix in your account

What is a Good Credit Score?

Well, for a range from 300 to 850, a 700 score will be considered good. A higher score inspires more confidence in creditors, as they are assured that you will repay the debt as promised.

Improving your Credit Score

Coming to the crux of the matter, let’s now say (God forbid) you have a low score. The next thing you’ll ask is ‘How can I improve my credit score’? Take heart, all is not lost yet.

There are some ways to improve credit score. They are simple yet effective. But nothing changes overnight. It could take anywhere between a month to three months to see noticeable rise in the score, while wondering how to improve credit rating.

1. Reduce Debt Levels

You must have noticed that your debt level or credit utilization is a major culprit that has lowered your score. The score reflects the debt against the credit available to you.

I’ll explain this better with an example. If my credit limit is $10,000 and I have a debt of $9000, the debt ratio is 90%. This is quite high. I need to bring it down to 30% if I want to fix my credit score.

Read: This is What Happens When You Max Out on Your Credit Card

How to Reduce Credit Utilization Ratios

• Pay the debts as soon as you can. This is the fastest way to raise credit score. For instance, in the above example, you could reduce the debt to $5000 and the ratio comes down to 50%. This is one of the fastest ways to build credit score.
• Now, let’s say you are not able to come up with this kind of cash immediately. Nothing to worry. You can ask your issuer to increase the credit card limit. That will also result in bringing down the ratio. Get it increased to $15000 from $10000. Now, with a debt of $9000, your ratio comes down to 60% and you can boost credit score. However, you need a good record, or you may not get an increase.
• Get a New Card

If your score is really that bad, consider getting a new card as part of a credit rebuilding strategy.  It can prove to be a credit booster.  If possible, get a credit card having a 0% initial balance transferring option to ensure a credit score improvement. You can then transfer the debt existing in the other card to this one. You need not pay the interest on the debt now.

If you have problems getting a new card due to your bad present scores, opt for secured credit cards. You can get these even with a bad score.

2. Improve Credit History

Another major factor contributing towards your low score is credit history. Sometimes, a missed payment might not be the culprit. It could be a lack of a credit history in your account.

• Keep all your credit cards open, as each of them contributes to the credit history.
• The longer you keep an account, the better your score is likely to be.
• Don’t cancel cards even if you are no longer using them. Keep them locked up, but don’t close them if you are trying to fix credit score.
• Try to make purchases using your cards, rebuild credit fast and pay them off on time every month. You will see that you can raise credit score fast this way.
• Take a loan, if you fancy buying that swanky new car. If you take a loan and make the monthly payment on time, it could boost your score. Of course, I’m not asking you to go on a splurging spree. Just saying!
• Don’t miss due dates. Even if you have missed one, the creditor reports the missing payment only after a moth. So if you’ve genuinely forgotten to make that mortgage payment, do it immediately. One single missed payment could cause a tumble of 100 points in your credit score. The record also stays in the report for 7 years. A stitch in time saves nine, as they say.

Read: This Is What Happens When You Marry Someone With Debt

3. Check Credit Reports

The final FICO score is based on three credit scores coming from TransUnion and Equifax as well as Experian, which are the national bureaus for credit. All details of your account are listed in the reports. You can order a free copy of these and check out whether there are any mistakes in them.

For instance, the report might state that you made some late payments, while you actually didn’t. By correcting the mistake, you can immediately repair credit score. Just send a message to the concerned bureau through email.

Time for Action

If you find your score low, you need to take steps for raising it NOW. Follow these strategies and you’ll be well on your way to improving your scores.

However, do be careful, as there are several companies that will promise to enhance your scores. Do it yourself and you’ll reap the benefits.