If you’re looking to save money, chances are you’ve given regular household expenses a once-over and tried to find items to cut. But you might save even more long term by working on your credit.
Let’s say your credit score is 620, which typically is considered “bad credit.” That means lenders or card issuers, if they’re willing to extend you credit at all, are likely to charge a high interest rate. You might also pay utility deposits that people with better credit don’t. And in 47 states, credit history can be used in setting car insurance rates, which usually means higher rates for drivers with poor credit.
But if you could reach 720, which is at the bottom of the “excellent” range, lenders would see you in a very different light. Even moving from bad credit to good — but not quite excellent — credit will give you options you don’t have now.
Can you improve your credit by 100 points?
Is a 100-point improvement realistic? Rod Griffin, director of public education for credit bureau Experian, says yes.
“The lower a person’s score, the more likely they are to achieve a 100-point increase,” he says. “That’s simply because there is much more upside, and small changes can result in greater score increases. It’s harder to improve scores when you already have a strong credit history.”
If you’re tracking efforts to build your credit, Griffin says, remember that there are many types of credit scores. Pick one score to follow over time. Several personal finance websites, such as NerdWallet, offer a free credit score.
Bear in mind that there are no overnight solutions. Time can erase many negatives on your credit report — but only if you make smart choices in the meantime.
Here are three ways to significantly build your credit:
Knock the errors off your credit reports
You can get free credit report information on demand from a personal finance website such as NerdWallet. You’re also entitled to one free report each year directly from the three major credit reporting bureaus: Equifax, Experian and TransUnion. The reports from the bureaus can run to dozens of pages; use this guide to dig into the information.
According to the Federal Trade Commission, about 5% of consumers have errors on their credit reports bad enough to result in a higher price for a financial product or insurance. About 1 in 4 reports contain errors that might have at least a small, negative effect on consumer scores. If you see mistakes, dispute them.
“If a collection account recently showed up on your credit reports that shouldn’t be there, you should see a big jump in your scores when you get it removed,” says NerdWallet columnist Liz Weston, author of the book “Your Credit Score.”
Pay your bills on time, all the time
If you’re among the 5% of people with serious errors on your credit report, correcting them may help your score a lot. But if you’re not?
“After checking for errors, look for any accounts that might be past due,” advises Bruce McClary, spokesman for the National Foundation for Credit Counseling. “Payment history accounts for more than a third of the credit score, so keeping accounts up to date is vital in order to maintain the healthiest rating.”
Bringing an account up to date won’t undo the damage from past missed payments, so it’s still important to pay your bills on time. Missed payments stay on your credit report for seven years, and the more recent the delinquency, the worse it is for your credit scores.
“A single skipped payment can knock more than 100 points off a good credit score,” Weston says. “The formulas don’t really distinguish between a bill you can’t pay and one you forgot to pay.”
Don’t go anywhere near your credit limit
After your payment history, your credit utilization — that is, the amount of your credit card balance you use relative to your credit limit — has the biggest impact on your score.
“You can boost your credit fast if you’ve got your financial act together and some money to correct the errors of your past,” Weston says. “One of the best ways to do that is to pay off your credit cards, particularly if they’re anywhere near their limits.”
Fortunately, your current credit utilization is all that matters. Once you get your balances down to an acceptable level and it has been reported to the credit bureaus, you won’t be penalized for the past.
McClary says it’s best to keep balances to 30% or less of your credit limits. If you can’t pay them down that much, pay what you can, he suggests. Maybe your tax refund can help you knock that debt down or out. You can also ask to receive text or email alerts when your balance is nearing a limit you set.
If you have a bunch of maxed-out credit cards, you could elevate your scores by nearly 100 points by paying them all off, says John Ulzheimer, a credit score expert who has worked at FICO and Equifax. You wouldn’t have to wait long, either.
“If you went from 100% utilization and 10 cards with balances to 0% utilization and 0 cards with a balance, you would see the increase in less than 30 days,” he says.
If you’re not sitting on enough cash to pull that off, consider a debt consolidation loan that moves your revolving credit card debt over to the installment side of the credit-scores ledger — as long as you can get a personal loan at a better rate than your credit cards have, Weston says.
This article updated Nov. 4, 2016.