Your credit score is important because it is an indicator of your credit history, and therefore, reflects your borrowing power. Lenders use your credit score to predict how likely you are to repay any loans they make to you. Credit scores can range from 850 (excellent) to 300 (poor). Most lenders view scores above 720 as ideal and scores below 630 as problematic.

Having a good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetimes. This is because people with higher credit scores are considered lower-risk borrowers, which means they are more likely to be approved for credit cards, mortgages, and loans; to receive lower interest rates; to get better car and homeowners’ insurance rates; receive higher credit limits; and more. A poor credit score, on the other hand, can make it difficult to rent an apartment, set up utilities, or get approved for a loan.

If you do not know your credit score, you should. Each year, you are entitled to request one free credit report from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. In addition, several companies offer free credit scores, and many banks offer free credit score information to their customers. If after checking your credit score, it is not where you want it to be, here are some steps you can take to raise it.

  • Make your payments on time and in full
    Among the five major factors that influence your credit score, payment history has the biggest impact. By paying your accounts in full and on-time each month, you are showing lenders that you are reliable and responsible about paying back what you owe. To help prevent missed or late payments, consider setting up bill pay reminders and/or automatic payments.
  • Keep your credit utilization low
    After payment history, credit utilization is the second most important factor that influences your credit score. Credit utilization refers to how much of your credit limit you are using at any given time. For example, if you have a credit card with a limit of $5,000 and you have a balance of $1,000 on that card, your credit utilization is 20%. The golden rule is to try and keep your credit utilization below 30%.
  • Keep old accounts open
    It may seem counterintuitive but keeping old accounts open will help you establish a longer credit history. Showing lenders that you can responsibly manage multiple credit accounts, especially over a long period of time, will help raise your credit score. Conversely, it is important not to apply for too many new accounts at once, as this will negatively impact your score.
  • Check for errors on your credit report
    Be sure to regularly review your credit report to make sure everything is current and accurate. One government study found that 26% of consumers had at least one potential error on their credit reports. Among the people who identified mistakes on their credit reports, 20% saw their credit score increase when they corrected them. If you do come across an error, reach out to the provider directly and ask them to fix it.

Making these changes will not increase your credit score overnight, but these steps can set you on the right path. Although each person’s situation is unique, in general, you can expect it to take at least three to six months of good credit behavior before seeing a noticeable change in your credit score.

Just remember: it is easier and quicker to build a good credit score than it is to fix a bad one. Negative account information, such as missed payments, defaults, court judgments, and bankruptcies, stay on your credit report for 6 to 10 years. It is also very easy for debt to snowball. If you feel like you are in over your head, consider reaching out to a financial advisor, who can help you create a plan to pay off your debt faster and more strategically.