Having a good credit score means more money for yourself.

Credit reports are like report cards for the adults and credit scores are like the GPA for the adults – at least financially. Not only creditors use credit scores to judge the trustworthiness of a loan applicant, even some employers take credit scores of a potential employee into consideration during the hiring process.

There are multiple credit scores calculation models out there, but we focus on FICO scores as over 90% of lenders use FICO as the benchmark. FICO credit scores range from 300-850 and are categorized as follow:

Assuming a $20,000 car loan paid off over 5 years, a difference of 4% interest rate will result in over $2,000 dollars difference in interest rate alone. Doesn’t sound like much of a difference?

Let’s take a look at mortgage. A $250,000 mortgage paid over 30 years with a difference of just 2% will result in over $100,000 paid in interest alone! If you invest this amount of money over 30 years in a low cost index fund, you would have accumulated over $600,000 that can be used towards a comfortable retirement.

If you do not know what your credit score is, you can purchase your scores directly from MyFico.com to see where you stand financially. If you know your FICO score and want to raise it quickly, let’s dive into our topic for today and explore how to improve your score in the shortest period of time.

3 Quick Ways to Improve Credit Score

As long as you don’t have serious adverse credit histories in your credit report, such as bankruptcies and foreclosures, you should be able to improve your FICO credit score quickly.

Of course, just like fat loss, “quickly” is a relative term. What we are looking at is between 30 to 60 days, so expect to wait for one to two months before seeing improvements after following the tips below.

Tip 1: Review Your Credit Reports from Credit Bureaus

You can order a free credit report from each of the 3 major credit bureaus – Experian, Equifax and TransUnion annually through AnnualCreditReport.com. Once you get your copy, immediately clear up any errors, such as your credit limits, payment history, late payments, and collection items that aren’t yours.

Negative information such as late payments can stay in your credit report for up to 7 years. So if you notice any bad history that stays for longer than that, you can feedback to the credit bureau to have it removed. Bankruptcies, however can stay for up to 10 years in your reports.

Information contained within credit reports is not always correct, and quite often they contain mistakes that can hurt your credit score. Once you submit your disputes, you can expect a reply within 30 days. If you need more details about correcting inaccuracies in credit report, read “3 facts about credit reports that you must know”.

Credit report is updated regularly, sometimes daily as your creditors and lenders report to the credit bureaus frequently. Your creditors report whether you paid on time / “as agreed” or late, and how late your payments were. They will also report how much of your credit line is in use, which brings us to the next tip.

Tip 2: Control Your Credit Utilization Ratio and Avoid Late Payments

Making sure you stay within your credit limit will help you improve your score. You don’t want to appear as if you are maxing out your plastics each month. If you have bumped up your credit limit but it doesn’t appear in your credit report, request that you credit report be updated.

Generally, having a credit utilization ratio of 30% or lower will help you boost your credit score. If your credit limit is $1,500, it is a good idea to utilize below $450 to improve your score.

What if staying below 30% credit utilization ratio isn’t enough for your expenses? You can either request a bump for your credit limit, or get an additional credit card to charge the remaining.

As a rule of thumb, keep just 2 to 3 credit cards and avoid late payments at all costs. Not only do late payments cost you late fees, they hurt your credit scores a great deal too. Remember that your payment history makes up the largest chunk of credit scores (35% of your FICO scores).

Tip 3: Use Different Kinds of Credit Accounts and Don’t Close Unused Cards

Using a different type of credit can bring a modest boost to your credit scores in a short period of time. For example, you may take a small loan from the credit union to pay off your credit debts or take up an installment loan for a gadget or appliance. Just make sure that you can follow the payment schedule fully.

Having different kinds of credit accounts show the bureaus that you are a responsible credit user and is fully capable of paying off your loans on time.

If you have multiple credit cards that have small balances on them, pay them off but don’t close the cards. Cancelling a credit card can actually hurt your available credit and drops your credit score. One way to keep a card active is to charge recurring payments, such as utility bills on it.

Keeping old credit cards also increase the average length of your credit history, which helps to boost your credit score. Remember that the length of your credit history accounts for 15% of your credit score calculation.

The Bottom Line

You will quickly realize that a major part of boosting your credit score comes from maintaining a good payment history and controlling your credit card utilization.

If you have problems remembering the due dates of your payments, then for your own sake, automate the payments. Having a few late payments will hurt you a lot more than just some costly late fees.

Limit your debts and learn to be a responsible user of credit, and you will see improvement in your credit scores in no time.