Tips for increasing credit score more quickly

Improving your credit score is a big step on the road to reaching some of life's big milestones. But first, it helps to know what credit scores are and how they affect your life. Here are the basics:

Credit scores are three-digit numbers calculated by a variety of different companies. Your score is used by lenders, landlords, phone companies, insurance companies and other creditors to determine how risky it is to do business with you. It can determine whether you can rent an apartment, lease a car, get a cell phone plan, and any number of other things you need and want in life.

The most common score is FICO (Fair Isaac Corporation), but VantageScore is another popular scoring model. These scores are calculated by the three national credit bureaus: Experian™, TransUnion^® and Equifax^®. To determine your credit score, they look at a host of factors, particularly your bill-paying history and whether you deal with credit responsibly.

How long does it take to raise your credit score?

For the most part, developing a strong credit score takes time. Credit reporting bureaus want to see that you have a history of paying your bills on time, and that you use credit judiciously. A FICO credit score ranges between 300-850. Scores above 670 range from "good" to "exceptional," while anything below 670 is considered "fair" to "poor." To get in the "good" to "exceptional" range you need to build a good bill payment and credit history.

Can you raise your credit score in 30 days?

The bright side is that good behavior can start impacting your score very quickly. With every payment you make on time, you can put yourself in a better position.

Follow these steps and you might be able to push you credit score into a new range:

Get a copy of your credit report and remove errors

Studies by the Federal Trade Commission have found that 5 percent of consumers have errors on one of their three major credit reports. That's why it pays to get a copy of your credit report and dispute any errors. Federal law allows you to get a free copy of your credit report every 12 months from each credit reporting company.

Pay down credit card balances to under 30 percent

Credit scoring companies like borrowers to keep their credit balances below 30 percent of their total available credit. This ratio, called "credit utilization," is basically a measure of how much balance you owe on your cards versus your total credit limit, and indicates how well you control your credit. So if you have a $1000 credit limit on your cards, for example, try and get the total balances below $300.

Activate old cards

That said, if you have any old cards stored away, you can lengthen your credit history by keeping a small balance on them. Remember to put these cards on automatic payment though, so that you don't end up offsetting that lengthened credit history with a late payment.

Become an authorized user

If you don't have a long history of credit card ownership, then you might consider becoming an authorized user on someone else's account. If a parent or relative with a strong credit history is willing to make you an authorized user of their card, their good credit could help build yours. Of course, making you an authorized user doesn't mean you will necessarily get to use the card. That's entirely up to the primary cardholder.

How to improve your credit score

The tips above might help you boost your credit score over a few months, but how long it takes to improve your credit score depends on where it lies on that 300-850 range. Here are some tips to get you into the "good" to "exceptional" range over the longer term:

Paying your bills on time

A sure-fire way of paying bills on time is by setting recurring payments on "auto pay" in your online banking account. Credit card companies, loan providers, and utilities can usually offer you automatic payment options that will deduct the amount due automatically from your checking account.

Reducing the amount of debt you owe

One good step is to start a debt reduction plan to clear up your finances—and set you on the path to a better score. Start by paying off your high interest rate cards: put all your effort into paying off a higher rate card, while maintaining payments on all other cards on auto pay. Once you've paid off the balance, don't cancel your card! Keep it open, even if you don't use it, so you can boost your credit utilization.

Start a new credit history

One strategy some people use to improve their payment history is to take out a credit card that is easier to qualify for, like a gas station or store card, and consistently pay off the balance each month. The good behavior can slowly put you in a better financial position. But be careful this strategy doesn't backfire on you: you don't want to take out new cards if you think you will be tempted to rack up more debt.

Don't take out too many cards

Sometimes it seems like a good move to open a new credit card with a merchant to get a discount on an item. But try not to go overboard and take advantage of many discount offers over a short period of time. Each new card comes with a "hard inquiry" on your credit report by the merchant, which can have a negative impact on your credit score.

Don't close your cards

Once you've paid off a card, it can be really satisfying to cut it up! But don't close your account. Keeping your credit card account open but unused helps give you a long, established credit history, and can improve your overall credit utilization ratio. (You can always put it in a drawer if you don't want to use it). Although sticking the credit card in a drawer has it benefits (including maintaining a favorable credit utilization ratio and low balance) you may also be able to request a credit card freeze. You may be familiar with a credit card freeze since it used whenever you report your credit card lost or stolen. In this case, you may use a credit card freeze if you want the card open in your name but don't want or need to use the credit card for purchases.

Diversify your credit mix

Many credit-scoring models like to see you using a diversified mix of credit, so it might make sense to consider taking out a personal loan, rather than relying on credit cards alone.