Woman Holding Credit Card While Using Phone By WindowYour credit score is a three-digit number that can have a meaningful impact on your future. Your credit scores can affect where you live, what types of loans you can take out, what credit cards you qualify for and even what kind of job you can get. Having good to excellent credit scores is important to qualify for the best in these types of categories and more.

If you’re wondering how to build credit fast, whether you’re new to credit history or need to turn bad credit scores around, use this guide.

The power of a credit score

Your credit scores represent your ability to spend responsibly. They reflect your ability to pay off purchases, which can influence a lender, landlord or employer when they’re considering working with you.

Your credit scores are influenced by several factors: payment history, credit utilization, credit history length and a mix of credit and hard inquiries into your credit. The less credit card debt you have and the more you pay off credit card purchases in full and on time, the more likely you are to have higher credit scores. Each factor is given a certain amount of weight. For example, your payment history will affect your credit scores more than the number of hard inquiries there are on your credit reports.

When you’re applying for something like a loan, a credit card, insurance, an apartment, a cell phone or even a job, your credit scores may be accessed to determine your level of financial responsibility. Your credit scores may influence approval rates for things like a home or loan, as well as interest rates and premiums for things like insurance and credit cards.

What’s considered to be a good credit score?

Credit scores can range from between 300 to 850. According to Experian, credit scores of 700 or above are typically considered good. Credit scores of 800 or above are considered excellent.

Good credit scores are achieved when an individual makes on-time credit card payments, has a low credit utilization ratio, has a minimal amount of hard inquiries into credit, has a substantial credit history and has an acceptable mix of credit sources. When you access your credit reports, you’ll be able to see how your performance in each factor is affecting your credit scores.

How a credit score can drop

Your credit scores may change from month to month depending on how you’re using your credit. One factor that can cause a drop is missed or late payments. Your payment history accounts for about 35% of your credit scores, making it the most important factor. If you’re more than 30 days past due on a payment, your issuer will report the delinquency to the credit bureaus, causing a drop. If you don’t pay the delinquency and your debt is sold to a collection agency, that will also be recorded on your credit reports and can cause your score to dip.

Your scores will also drop if your credit utilization spikes to 30% or more of your available credit. If you start making more purchases with credit and don’t pay them off before they’re reported to the credit bureaus, your credit utilization ratio will increase. Experian reports the best scores have a credit utilization ratio of 10% or less.

Another factor that can cause a drop is a hard inquiry into your credit. This can happen when you apply for a new credit card or a loan or mortgage. Because hard inquiries only account for about 10% of your credit score, you’ll only see a major drop if you apply for lots of things at one time. Finally, because your credit history is a factor, shortening your history when you close a card can negatively impact your credit score.

Credit score rebuilding methods

4 Tips to Improve your Credit Score

One of the best ways to rebuild your credit is to pay off your credit card debt. This helps you lower your credit utilization and factors positively into your payment history. Always make on-time payments, and pay off as much credit card debt as possible. If you’re struggling, you can look into balance transfer credit cards for 0% intro APR periods on credit card debt. You can also look into a credit-consolidating loan to get the money you need to completely pay off your credit card debt, and then repay the loan at an interest rate that’s lower than the credit card interest rate.

You may also consider a credit-builder loan. With this type of loan, a lender deposits the balance of the loan into a savings account. As you make fixed payments toward it, your on-time payments are reported to credit bureaus. You’ll get the total balance and any interest you paid back at the end of the loan term.

Some more tips include:

  • Avoid closing any cards so you can retain your credit history.
  • Avoid opening new cards so you can avoid hard inquiries into your credit.
  • Lower your credit utilization by making more purchases with cash or a debit card.
  • Aim to get your credit utilization down to 10% or lower.

Setting up guardrails

Once you’ve achieved or are on track to good credit scores, you’ll want to keep it intact. Remember that payment history and credit utilization are the factors you should hone in on. Commit to only making purchases you can pay off on-time, in-full. This will protect your payment history and lower your credit utilization. Create a budget, monitor expenses and make payments early or on time to stay on track.

You should also try to retain your credit history by keeping your credit cards, even if you don’t use them frequently. You may not want to keep a card that no longer makes sense for you (if you’re paying an annual fee, for example), but keep the free ones to lengthen your credit history. Additionally, only open new accounts when you must. This will lower the number of hard inquiries on your report.

You should take your credit scores seriously. Even if it doesn’t affect you now, it will in the future when you want to make a large puchase or apply for a job. Start building credit history now and focus on making on-time, in-full payments to keep your credit utilization low and your credit scores high.