Your credit score holds a lot of power. It affects your ability to get a car loan, rent an apartment, apply for a mortgage, and sometime, even your ability to get a job. And fundamentally, a lower score means that every time you need to borrow money, you'll pay more to do it. Over time, that really adds up.
Fortunately, a less-than-perfect credit score today doesn't doom you to a life of bad options and high interest payments. There are plenty of ways you can start now to improve your score and your overall financial success. Here are the 10 biggies:
10 Ways to Boost Your All-Important Credit Score
You're entitled to a free credit report every year from the three major credit reporting agencies -- Equifax (EFX), Experian (EXPGY) and TransUnion. Go over your report line by line. Do your balances match your records? Are there any claims of delinquencies for accounts you never opened, or late payments you don't remember? If you spot any errors, contact the reporting agencies to dispute them.
Your credit history reflects how responsible you are with your credit. Missing a payment -- or multiple payments -- lowers your score and makes you look risky and unreliable. Set up a system to guarantee you're on time with all future payments. Mark due dates on your calendar or (even better) set up automatic payments from your checking account.
It's not just the fact that a payment is late. Credit agencies also keep track of how late your late payments are. The longer it takes you to pay an overdue amount, the worse the damage it will do to your score, so if you're late on any bills, take care of them as fast as possible.
Credit agencies pay attention to your credit utilization ratio -- how much you owe compared to the maximum your credit cards would allow you to borrow. If you're using most of your available credit, it's time to adopt an aggressive strategy to pay down your balances.
There are two popular strategies. One version of the "snowball method" involves paying off the card with the lowest balance first, then working your way up the line. This gives you the fastest psychological victories from crossing debts off your list, which motivates you to keep going. Or you could follow the traditional snowball method of paying off the debts in order of the highest interest rate first. Resist the urge to play the balance transfer game. Instead, focus on genuinely paying off the balances, once and for all.
As long as you keep adding to your debt, you'll never get ahead, so it's time to drastically reduce how much you charge on a regular basis. Put your credit cards in a drawer or cut them up altogether. Take a red pen to your budget. Get a second job for extra income. Do whatever it takes to stop adding to the balances you're trying to pay down.
It seems counterintuitive, but if you've paid off an account, you should still keep it open. It will show up as "good debt" on your credit history, and the longer you've had it, the better your score. (Note: You can cut up a credit card and still technically leave the account open.) Keep the account "active" by occasionally charging a small amount on it, like your Netflix (NFLX) subscription and immediately paying it off in full. Set up automatic payments to make sure you're never late.
If you have a spotty credit history, it's easier to get a secured credit card, department store card or gas credit card than a major credit card. If you make small charges to it each month and then pay them off immediately, you'll build up a positive credit history and boost your score.
If you're having trouble getting a card of your own, ask a friend or relative to add you as an authorized user to one of their credit card accounts. This is a big favor to ask, though, so make sure to use this privilege responsibly and only charge what you know you can pay off immediately. And don't be offended if the person says no.
Credit card companies are more flexible than you may think -- after all, they want to keep your business and collect your money. So it doesn't hurt to call up customer service and ask about ways you can negotiate your current arrangement. You may be able to get a settlement arrangement that lowers your interest rate or waives late charges so long as you make regular payments. You may also be able to get a certain late charge removed if you can demonstrate hardship and an otherwise decent payment history.
A high debt utilization ratio (using too much of your credit limits) can hurt your score, so if you're able to negotiate a credit limit raise, it could give you some extra points. That said, this is a risky move if a higher limit will only tempt you to spend more, so use it only if you really trust yourself.
Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns seven rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who want to ditch the cubicle, shatter limits and live life on your own terms -- while also building wealth, security and freedom.