A poor credit score can cost you money. It can increase the amount you’ll pay for your home, car, and insurance, and it can even require you to pay extra security deposits for things like electricity. Improving your credit score is in your best interest, but it won’t happen overnight. It’s going to take time, patience and planning.

Know Your Score

The first step is to obtain copies of your credit reports. The Fair Credit Reporting Act entitles you to one free copy per year from each of the three major credit reporting bureaus: TransUnion, Experian and Equifax. You can access these reports at You can opt to spread the reports out over the year by selecting one report every four months, allowing you to monitor your credit rating and track your progress for free.

Most credit tiers, including FICO, run as follows:

Excellent: 750+
Good: 700-749
Fair: 650-699
Poor: 600-649
Bad: 599 and below

Check Your Reports for Errors

Once you have your reports, check them carefully for errors. Begin by checking the easy items like your full name, Social Security Number, birth date, and address. Move on to verifying that all your accounts are being reported and that your payments are correctly documented. Specifically, are there any late or missed payments you remember making on time (and can prove)? Keep an eye out for any accounts or applications you don’t recognize.

If you find an error, you’ll need to file a written dispute with each credit bureau. If you find multiple errors, you’ll have to file a separate dispute for each one, with each bureau. For instance, if you find three errors, you’ll need to file nine total disputes. The credit bureaus have 30 days to respond. The Federal Trade Commission provides additional information about filing disputes with the credit bureaus.

The Two Most Important Credit Score Factors: Payment History and Credit Utilization Ratio

According to Bruce McClary, Vice President of Communications for the National Foundation for Credit Counseling, 35% of your credit score is determined by your payment history and 30% is determined by your credit utilization ratio. Lenders perceive these factors as indicating most reliably your ability to pay back a debt. It follows that improving these two factors will have the most impact on your credit score.

Paying Bills on Time

Paying your bills on time means paying ALL your bills on time, not just the “big” ones like home and auto loans. You also have to keep up on your electric, cable and phone bills. It also means that you have to pay those bills in full. Settling an account for less than you originally agreed or paying off an account once it’s in collections negatively affects your credit score.

If you do have a late or missed payment, contact the creditor as soon as possible to work out an arrangement. The creditor may still report the late/missed payment to the credit bureaus, but it doesn’t hurt to ask for leniency. Even if the creditor won’t rescind the delinquency, bring your account current as quickly as possible because a 60-day delinquency impacts your score more than a 30-day delinquency.

Late and missed payments stay on your credit report for seven years. Their impact will decline over time and can be offset with positive marks from current on-time payments. Set up automatic payments and use calendar reminders to make sure you stay on track.

Credit Utilization Ratios

McClary defines credit utilization ratios as follows: the combined balance of how much you owe on your credit cards compared to the total amount of credit you still have available. Your credit score takes into consideration both the individual credit utilization of each card and your overall utilization ratio.

Most experts suggest keeping your ratio at or below 30%. McClary warns that your score could be negatively impacted if it goes above 25%. People with the best credit scores tend to have credit utilization ratios at or below 10%.

Pay Down Debt

The most obvious, and for some people the most difficult, way to improve your credit utilization ratio is to pay down your debt, starting with credit cards with the highest utilization. John Ulzheimer, formerly of FICO and Equifax, says that it’s possible to increase your credit score by 100 points if you payoff a number of maxed-out credit cards. It won’t be an easy task, but it will be worth the effort.

Raise Your Credit Limit

Call your credit card provider and ask for a credit limit increase without a “hard” credit inquiry. Hard inquiries remain on your credit report for two years and can have a small negative impact. If your credit card provider agrees, your limit will increase while your balance remains unchanged, instantly improving your credit utilization ratio.

Make Multiple Payments

If you charge more than 30% of your credit card limit during a billing cycle, even if you pay the balance off, your credit score will pay the price. Keep your credit utilization ratio as healthy as possible by making multiple payments during the month. When your statement balance is reported to the credit bureaus, they’ll see that you’ve kept on top of your spending and didn’t go over 30%. Again, utilize automatic payments and/or calendar reminders to keep your payment plans on track.

The Remaining 35 Percent

If your payment history and credit utilization ratio determine 65% of your credit score, what makes up the remaining 35%? According to McClary, 15% is determined by the length of your credit history, 10% by new credit inquiries, and the remaining 10% by your credit mix.

Length of Credit History

Don’t cancel credit cards you no longer use. Not only do they help establish your credit history, they also help your credit utilization ratio.

Resist the urge to have paid accounts removed from your credit report after the seven-year mark, especially if they’re positive examples of your ability to pay in full and on time. It’s “like making straight A’s in high school and trying to expunge the record 20 years later,” Ulzheimer says. “You never want that stuff to come off your history.”

If you have a close friend or family member with a long history of making payments, you could ask to become an authorized user on their credit card. Don’t be surprised if the answer is no because this is a huge favor to ask of someone. He or she would be risking their own credit rating if you miss even a single payment. The reverse is also true. Your credit score would be tied to their payment practices, both positive and negative

New Credit Inquiries

Restrict rate shopping to a limited time for big-ticket items like a new home or vehicle. Scoring formulas take into account that you’ll probably be submitting multiple applications but only taking out a single loan. The FICO score ignores such inquires made 30 days before scoring. Any found older than 30 days will be counted as one inquiry if they were made within a typical shopping period. Depending on the form of scoring software used, a shopping period is considered between 14 and 45 days.

Don’t open unnecessary lines of credit. A retailer my try to tempt you by offering a 10-20% discount for applying for a store credit card, but the hard inquiry will stay on your credit report for two years, regardless of whether you’re approved for the card. The impact will be small, but if you can’t trust yourself with another open line of credit, it’s best to avoid the temptation.

Credit Mix

Your credit mix is determined by your combination of revolving credit (like credit cards) and installment loans. Examples of installment loans are home, auto and student loans. Although lenders like to see a variety of accounts, it’s not advisable to take out a loan just to improve your credit mix.

Improving Your Credit Score Is a Marathon, Not a Sprint

Improving your credit score takes time, especially if you’re starting closer to the bottom of the scale. But the good news is that there’s light at the end of the tunnel, especially if you take advantage of tools like automated payments and calendar reminders. Focus your energy on the two biggest factors, payment history and credit utilization ratio, and your number will start to improve. It won’t happen overnight, but it will happen.