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 raising your credit score.
Let’s say your credit score is 620.
If you have a 620, you’re typically considered to have “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 a NerdWallet study showed that some drivers with poor credit pay more than twice as much for car insurance as drivers who have excellent credit.
But if you could raise your score to 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 score 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 improve your score, Griffin says, remember that there are many types of credit scores. Make sure you’re checking the same score through the same company each time.
And bear in mind that there are no overnight fixes for bad credit. Time can erase many negatives on your credit report — but only if you make smart choices in the meantime.
Here are three quick ways you can significantly improve your score:
Knock the errors off your credit reports
First, go to AnnualCreditReport.com for a free look your reports from the three major credit reporting bureaus: Equifax, Experian and TransUnion. The reports look intimidating, but this guide can make them comprehensible.
These reports are the basis for credit score formulas.
According to the Federal Trade Commission, about 5% of consumers have an error on their credit reports that is 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, fixing them may give your score a big boost. 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 late payments, so it’s still important to pay your bills on time. Late 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 scores 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 boost 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 the installment side of the credit-scores ledger — as long as you can score a personal loan at a better rate than your credit cards have, Weston says.
Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.
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