Your credit score plays a very critical role in your financial life. The 3-digit number can determine everything from whether a landlord will rent to you to whether you get hired for a job.

The rewards of a good credit score are many, but the most important is qualifying for better terms, rates and perks on everything from credit cards and mortgages to personal loans and student loans; basically, everything that involves financing.

Conversely, a low credit score means lenders will consider you a higher-risk borrower. Very few lenders will give you credit, and if you’re lucky to get a line of credit, you’ll likely be charged criminally high APRs. 

If a less than stellar credit score is holding you back, there are steps you can take now to raise your credit score and begin the journey to a better financial future. 

Review Your Credit Report and Dispute Any Errors

Your credit report is an all-inclusive record of your dealings with all sorts of credit. It’s what credit bureaus use to create your credit score. Look at it this way: If we treat your credit report as your financial report card, your credit score becomes the actual grade.

You can now get your free annual credit report from annualcreditreport.com.

Once you get it, make sure you review the information and address any errors. Check your personal information – name, phone number, address, etc. – to make sure it’s correct and up to date. The same applies to credit balances, credit limits and payment information. 

If you find an error in your credit report, take it up with the creditor and credit bureaus. Request them to correct or update any information.

Pay Your Bills on Time

Not to sound condescending, but Pay-Your-Bills-On-TIME! 

It’s vital to understand what goes into calculating your credit score, as payment history accounts for 35 percent of your credit score.

Late or missed payments stay on your credit report—and effectively affect your credit score—for up to 7 years. It’s not just the big payments; even a small slip-up can lower your score by a lot.

If you have the money but find it a challenge to pay your bills on time, setting up automatic payments from your bank account will ensure you never miss any payments.

Keep Your Credit Utilization Ratio Low

This is the percentage of credit used compared to the total credit limit. It’s the second most important factor when determining your credit score.

A low credit utilization ratio means you’re doing a great job at budgeting. On the other hand, lenders may view you as more likely to default if you’re close to hitting your credit limits.

Keeping your utilization rate below 30 percent is the best way to get your credit score up where you want it. So, if your limit is $2,500, don’t spend more than $750. 

Another way to lower your ratio is to request a credit limit increase. You have a better shot at getting a higher limit if your income has increased or if you have added more years of positive credit experience. Just do not increase your balance in tandem. 

Don’t Close Old Accounts

Once you finish paying off your auto loan or student debt, you may be impatient to close the accounts and put everything behind you.

You may be shocked to learn that doing this can actually lower your credit score. This is because the length of your credit history plus the ages of your different accounts matter a great deal. 

The age of your oldest bank account, newest bank account, and the average of all of your accounts constitute 15 percent of your credit rating. 

Generally, a longer credit history means a higher score. So, provided you’re not paying annual fees on an existing account, keep it open and put small, recurring purchases on them.

The last time you used your cards is another factor in your score. If you have an old credit card, try using it to pay for a recurring thing such as a utility bill.

Limit How Often Your Credit is Checked

Getting a new credit card and taking out an auto loan or a mortgage can hurt or help your credit score, so it pays to be strategic.

Research shows that loan defaulters tend to rack up massive debt before they default, and lenders are keen on this. 

Lenders look at a string of hard inquiries as a sign of financial trouble and is the reason why new inquiries make up 10 percent of your credit score. Each hard inquiry reduces your score by a few points.

Hard inquiries stay on your credit report for about 2 years, so only apply for the credit you need.

Conclusion

Having a poor credit score is not the end of the world. Follow the above tips to the letter, and your credit score will eventually show you love in return.

Lower interest rates translate to lower payments. By lowering your monthly payments, you can free up money for other important goals like padding your emergency savings, paying down debt, saving for retirement or maybe even splurging for an overdue vacation.