A credit score is a three-digit number that lenders use to determine risk. Consumers with a credit history will likely have three credit scores, one from each of the three main credit bureaus, Experian, Equifax and TransUnion. Essentially, your score tells a lender how likely you are to pay them back in full and on time. And it's pretty important: Not only does this number determine if a lender will let you borrow money, but also the amount, terms and flexibility the lender will offer you.
When trying to improve your credit score, keep in mind that there are no quick fixes, and the following tactics will not always produce the same outcome for everyone. "A credit score is like a thumbprint—it includes numerous variables that are specific to the individual," says Wayne Sanford, author of "The Real World on Credit" and a credit expert in Dallas. That said, here are six proven routes to improving your score:
1. Keep around old credit cards.
The more history you have as a borrower, the better your score should be. So even though it might be satisfying to bid adieu to the credit card you opened in college, it will reflect poorly in your score. "Any negative marks on your record are spread out over the number of years you've had credit. If you close your oldest accounts, you'll look like a newer borrower," Sanford says.
2. Don't close accounts as you pay them off.
Think you'll get a better score after closing an account with zero balance? Actually, it will have the opposite effect. Credit scores hinge on your debt-to-credit ratio, so even though you have less debt after paying off an account, you need to keep the credit line around to lower this ratio.
3. Keep balances low.
If you're looking to improve your score, pay down each of your credit cards as swiftly as possible to get the balance below 30 percent of the limit. Cards leveraged over that threshold reflect negatively on your score.
4. Better late than never.
Even if you've missed a payment on a loan or credit card, the best way to improve your score is to pay as soon as possible. Payments under 30 days late are not reported to credit agencies.
5. Start paying on time consistently.
The longer you go without making a mistake, the better your score will be. "Think of it as stubbing your credit score toe: If last month's bill was 30 days late, it hurts like heck. However, a month from now it won't hurt as much," Sanford says.
6. Check your credit report and dispute any errors.
You don't know what's affecting your score until you thoroughly review your credit report: Something fishy, such as loan applications you never filled out, could be affecting your score. Any errors should be reported directly to the credit bureaus.