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Credit scores are the "grades" that credit reporting agencies give you and share with creditors and lenders who may want to extend a loan to you or green-light good credit for you.

Your credit score, also known as a FICO score, is used by creditors to figure out if you're a good credit risk or not. It lets a creditor know if it's a good bet that you'll pay off that credit card or make timely payments on that new car or truck. Start with these credit-boosting tips:

12 Ways to Improve Your Credit Score

Here are just a few ways you can begin improving your FICO score.

1. Get your free credit report

Job one is to know where you stand with your credit score, and you can do that with a free credit report. Request your credit report at; by calling 1-877-322-8228; or by completing the Annual Credit Report Request Form and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. When you order, you'll need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.

2. Review your credit report thoroughly

Check your free credit report carefully - it could help you boost your score. Why? It's common for banks, lenders and credit companies to make a mistake. If you spot any accounts that you don't recognize, dates that don't seem to match up, and especially if you see any mention of late payments or penalties, make certain they have been recorded correctly - and don't be afraid to call the company in question for details. After all, it's better to spend a few minutes on the phone clearing something up than leave a mistake on the report that could adversely affect your credit record. That phone call could wind up boosting your credit score - and it really only takes a few minutes of your time.

3. Start paying your bills on time

If your credit score truly falls on the low side, bear in mind that time is on your side, as long as you use that time to your advantage. If you do have a history of late payments, you need to turn that trend around and start making sure your bills are paid on time. Sign up for online payments, make a note in your calendar, and keep close track of your bank account savings and spending. In short, do what you need to do to get those monthly bills paid on time. Once you do this for several months, you'll start seeing an improvement in your credit score.

4. Focus on your credit card bills

Credit card interest is among the highest interest a financial consumer will pay for credit or a loan, so it makes sense to focus on getting your credit card payments down first. As the key to good credit is paying your bills on time, keeping account balances low, paying off high-interest cards first, and taking out new credit only when you need it, are all good moves for credit card consumers looking to increase their credit scores. Focusing on credit card debt is a great way to boost your credit score, as lowering debt, lowering card balances and making payments at a faster rate are solid ways to hike your credit score right away.

5. Avoid opening new credit accounts

Creditors and lenders don't like it when you open new credit accounts. To them, that means you're taking on more debt, and may have problems paying it all off. By keeping your open, active credit and loan accounts to a minimum, you'll keep your credit score on an upward path.

6. Keep your late payments to 30 days

Anyone can find themselves in a financial bind, and maybe can't pay all of their bills on time. Hey, it happens. But if an unavoidable late payment scenario happens to you, keep your late payments to 30 days. That's because many lenders and creditors don't report 30-day late payments to credit reporting agencies, but all report payments that are 60 days late.

7. Establish a credit score objective

Another good way to hike your credit score is to set a goal and aim to meet it. Let's say your credit score is 620 - that's near the line between decent credit and bad credit. Aim to get up to a credit score of 670 within 100 days, by paying down debt, avoiding new debt and getting more aggressive about reviewing your credit report on a regular basis.

8. Avoid high credit card balances

Credit users who overspend and see their card balances rise are just asking for trouble. Credit card reporting firms heavily penalize cardholders with high balances - the amount of money you owe on your credit card. Ideally, you want to keep credit card balances at 30% of your available credit, meaning you need to keep your debt balance at $1,000 or below if you have a credit card with $3,000 in available credit. The best way to do that is to relentlessly pay down credit card debt.

9. Set up automatic payments

Given that payment history accounts for 35% of your overall credit score, the more payments you make, and the earlier you make them, the more it helps boost your credit score. To keep that momentum going, set up automatic payments with lenders and creditors and ask for bill payment deadline alerts from them, as well. This is especially helpful if you're having trouble paying your bills on time.

10. Don't cut up your oldest credit card

If you decide to cut up your credit cards, that's generally fine -- particularly if you're overspending with those cards. Just don't cut the credit card you've owned the longest. The longer you've had a credit card opened, the more that helps your credit score (credit scoring firms deems you a reliable risk if you've stayed with a single creditor for a long period of time.) Just remember to keep your credit card utilization rate (i.e., the card credit you have but you're not using) as low as possible, as that helps your credit score.

11. Create and sustain an emergency fund

Building a so-called rainy-day fund of six months of your annual income can insulate you from dry financial periods where you can't meet all of your debt obligations. That will help keep your credit robust and avoid any dings to your credit score.

12. Stay away from pricey credit monitoring providers

Don't fall for the bells and whistles sales pitch listed on many credit report websites. Always remember, you're entitled to one free credit report annually; anything over and above that -- such as monthly credit monitoring services, or "fraud alert" plans - will cost you potentially hundreds of dollars. Instead, use that extra money and apply it toward any outstanding debts.

How is a Credit Score Calculated?

Creditors make those calculations based on the data included in your credit reports, which are issued primarily by the three major credit reporting companies - TransUnion, Equifax and Experian. By and large, the entire credit score range stands between 350 and 800. The higher your credit score, the easier it is to get loans and credit. The lower your credit score, the harder it is to get approval for loans and credit, and the more you'll pay (in interest) for the credit you do earn from a creditor or lender.

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A personal credit score is calculated using five critical pieces of personal financial data:

  • Payment History: Approximately 35% of a credit score is based on an individual's bill payment history.
  • Amounts Owed: Approximately 30% of a credit score is based on the amount of money owed by an individual.
  • Length of Credit History: Approximately 15% of a credit score is based on the length of your credit history.
  • How Much Credit? Approximately 10% of a credit score is tied to new financial credit activity.
  • Types of Credit: Approximately 10% of a personal credit score is based on the kinds of credit and individual uses, like an auto payment, a mortgage loan, credit card bills and personal loans, for example.

How Long Does it Take to Improve Your Credit Score?

The amount of time it will take to improve your credit score is determined by a number of factors, most importantly what caused your score to fall. If you are adding a new credit card, that can impact your credit score and take a little time to recover. If you have to file for bankruptcy, it's going to take significantly longer.

Pay attention to the calculation of a credit score as well. If payment history is 35%, paying off one or more credit card balances can have a fairly significant impact on your credit score - and a quick one too. An unpaid credit card balance is a much less significant form of credit than a mortgage or bankruptcy claim, so in 1-3 months paying it off will likely show in the form of a better credit score.

A home foreclosure or bankruptcy, meanwhile, will likely take a minimum of 7 years before your credit score can get to a point where it can reasonably seen as "recovered."

Of course, nothing about this is set in stone or guaranteed. Everyone's credit score is determined by their own unique set of factors, and its those factors that will cause the rate at which your credit score improves. It will also depend on things generally going right for your credit during that time period; you could be doing everything right to pay off a missed mortgage payment, but unforeseen circumstances with a different line of credit could cause your score to dip further.

Why Improving Your Credit Score is Important

Learning how to improve your credit score should be a top priority for financial consumers, given the advantages a great credit score provides and the disadvantages of ignoring your credit score.

Think about it. A good credit score is the key that unlocks the door to ample financial benefits to consumers, including:

  • Fast approval for big-ticket items like a home mortgage, an auto loan, or a credit card application.
  • Lower interest rates on loans and credits
  • Increased approval rates for higher loan and credit limits.
  • A green light for apartment rentals.
  • Better deals on car insurance.
  • No security deposits on everyday services like smartphones, cable television and utilities.

Yet if you ignore your credit score, the opposite happens, from a personal financial point of view.

  • You risk being turned down for loans and credit.
  • Your interest rates on the loans and credit you do get will be higher, leading to more burdensome bill payments.
  • Having to come up with security deposits on everyday services like car insurance or cell phone service.
  • You could be turned down from a job for having bad credit.
  • You could be turned down for an apartment rental.

(This item has been updated.)