Many of us faced times where we had no choice but to default on our payments. Sometimes it’s out of our control and we neglect to exhaust all options not to fall behind. That one mistake in your life might have hurt your credit score and now you’re frantically trying to find ways to get back to where you were. Figuring out how to improve your credit score isn’t as difficult as you may think.

Forget about the past and focus on the present. If you’re looking for a way to improve your score by 100+ points within the next month, I can’t help you. However, if you’re truly serious about improving your credit score and getting back on track, then keep reading.

I won’t bore you to death about the same old advice that gets repeated over and over again, which is to always pay your bills on time. It’s a lot easier said than done. If it were that simple, everyone would have an excellent credit score. On the other hand, I do believe that knowing how your credit score is calculated is still very much important to improving your score.

Let’s Start With the Basics

I won’t go too much into detail with this since this is all information that can be found online, but here are the five different factors of how your score is calculated:

Payment History: This is single-handedly the most important factor. It comprises 35% of your credit score calculation and is a clear indicator that many creditors use to determine if you’re going to default on a future loan.

Amount Owed: This is the second most important factor that goes into your credit score and it comprises 30% of your score. If you’re always maxing out your credit cards and “recycling” your available credit every month, it shows that you’re struggling to pay down the balance. Keeping your overall credit utilization under 30% is the rule of thumb.

Length of Credit: This factor only comprises 15% of your score. This is why you should think twice about closing any accounts that are “current” and have a long credit history.

New Credit: The number of times since you opened an account compared to the total number of accounts you already have is also a factor. This also includes any recent inquiries and the velocity of how fast you open new accounts. These factors comprise 10% of your score.

Types of Credit: Lastly but not least, the different types of accounts you have listed on your report are also a factor. Some of the various accounts you can have that affect credit score are: installment loans, auto loans, student loans, credit cards, mortgages, or even home equity line of credits. If you’re able to juggle all different types of credit, this will be a positive factor to creditors.

So What’s the Secret to Improving Your Score?

Improving your credit score takes time. If you’re looking to improve your score so you can get the best mortgage or auto rate next month, you might want to hold off on that big purchase. The secret to improving your credit score is to be more financially responsible. Your credit score is a three-digit number that tells creditors how likely you’re going to default. Every positive action you take can paint a completely different score each month.

If you’re able to instill good financial habits, a good credit score will follow. Think about it carefully. Think about all those times your balance never seemed to decrease. When you pay your minimum payment (or even a little higher), did you find that you were using your available credit again the following month? It’s a vicious and never ending cycle unless you make drastic changes to stop it.

There are two different types of scenarios we’ll look over. The first one is for those whose credit score is super low to the point where getting access to regular credit cards is out of the question. The second scenario is for those who already have an established credit history but are looking for ways to pay down their debts to improve your score.

If Your Credit Score Is Less Than Perfect, Do this

You’re going to face an uphill battle if your score is less than perfect. My definition of this is the individuals whose credit score isn’t high enough to even get a basic credit card to start rebuilding their credit. This is the toughest part. You want to rebuild your credit but you don’t even have the opportunity to prove yourself that you can pay your bills on time.

This may apply to those who just got out of bankruptcy or for those who had delinquent accounts go into collections. Whatever the case, it’s not impossible to get out of this slump. So what exactly do you do?

The first step may be to go apply for a secured credit card. A secured credit card will require you to pay a deposit upfront (usually starting at $200) and this deposit will establish your credit line. The most important part of this is to make sure that the creditor is reporting your payments to all three credit bureaus: Experian, Equifax, and Transunion.

So if you pay a $500 deposit you will have a credit card with a $500 limit. I know even saving $500 can be a struggle to some but if you’re able to do this, you’ve already won half the battle.

Now that you have your first secured credit card, this is your time to shine. Use this opportunity (with your zero balance) to always keep your total balance under 30% of your limit. So in this example, you should always keep your balance under $150. Another tip is to make multiple payments per month. Don’t always wait until the last minute on the due date to pay off your account. Creditors can see your payment activity so making multiple payments every month may be a good sign.

Continue this process every single month. Sign up for a free credit monitoring service like Credit Karma, to see how your credit score is trending. This is a good habit and you’ll be able to see how timely payments and low credit utilization can affect your score.

After you improve your score, you may have the option to ask your creditor to change your account to a standard credit card to get your deposit back. Alternatively, the creditors might also increase your credit limit without asking for an additional deposit.

Improving Your Score If You Have High Debt

If you’re in a situation where you’re credit score is “average” but could be better, chances are that you’re probably carrying too much balance on your credit cards. Thirty-five percent of your credit score is determined by your overall credit utilization. This means that you’ll have to get your balance down to roughly 30% of your limit in order to have the best shot at improving your score.
So how exactly do you do this? It’s a lot of work that’s going to take a lot of sacrifices. Here’s what you should do:

1. Take a look at your monthly budget: Print out the last 6 months of your credit card statement. Itemize every single expense and see where your money is going.
2. Question Every Single Expense: Take a look at how and where you’re spending your money. Think carefully and think logically. Ask yourself if it was absolutely necessary to make that one purchase.
3. Revisit subscriptions: See if there’s any recurring expenses that you can cut out. Think cell phone plans, online media plans, and insurance plans. Is there room to eliminate these or search for less expensive options?

After you carefully look over your expenses, the next step is to create a habit to save as much money as possible. I know it’s a lot easier said than done, but this is the only way you’re going to pay down your debts. You need to spend less than what you earn. Period.

You need to start questioning every purchase you make. Ask yourself if this is a need or a want. Do not fall into the mindset that your available credit is “free money” that you can pay back at a later time. This is a trap that many people fall into.

Getting out of debt or paying down your balance is a marathon. You will absolutely need to make sacrifices along the way but the feeling of accomplishing this feat will be amazing. The reason why instilling these financial habits is so important is to make sure you do not fall back into debt in the first place.

Another great habit is to pay down your credit card multiple times per month. Paying down your balance as you go will decrease the amount of interest you pay. The reason is because your interest is calculated based on your average daily balance. By making multiple payments per month, you’re decreasing your average balance as well as making a concerted effort to pay down your debts.

Other Tips to Improve Your Credit Health

Now that you understand the core essence of improving your credit score, here are other methods that I highly recommend that you do:

• Use your calendar (desktop or mobile) to set payment reminders. The last thing you want to do is to miss your payments and incur a late fee.
• Religiously check your credit card statements: Sometimes we all procrastinate logging into our account to see the high debt that we have or open the credit card statement that just came in the mail. However, it’s important to always stay on top of exactly how much you owe. Confronting and acknowledging your debt is the first step to pay them off for good.
• Do NOT close old accounts. It’s tempting to remove that ten-year-old account that you rarely use, but having a long credit history is important to maintain a positive credit score.
• Sign up for free credit monitoring services and monitor how your credit score changes over time. Take a note of how lower balances and on-time payments affect your score.
• Ask your creditor for a credit line increase (but make sure it’s not a hard credit pull).
• And lastly but not least, do not obsess over your score. The key to building a good credit score is to implement sound financial decisions. If you worry more about your overall financial health, a good credit score will follow.

What About Credit Repair Programs? Can I Trust Them?

Credit repairing companies may seem too good to be true. Don’t get caught up on the “quick fix” to rely on a credit repair program to fix your credit report.

The Consumer Financial Protection Bureau (CFPB) provided some warning signs for credit repair scams:

1. The company is charging you an up-front fee before any work is provided. Under federal law, credit repair companies can’t require you to pay until they’ve completed the services.
2. The company doesn’t tell you your rights and what you can do for yourself for free.
3. The company recommends that you don’t contact any of the nationwide credit reporting companies directly.
4. The company tells you it can get rid of the negative credit information even though it’s accurate (this is impossible).

The bottom line is that no one can remove negative information from your credit report that is accurate. You can’t magically make that disappear. You’ll need to work hard to improve your credit by working your way back up or paying down your balance. There’s no shortcut to improving your credit.

Improving your credit score comes with maintaining good financial habits. Focus on cutting down on your spending and paying down your debts. Lastly but not least, once you’re able to improve your score, make sure you keep up with good habits to maintain your score.