What’s your credit score? For some answering this question, it may be met with hesitation and slight embarrassment. While we all strive for the highest score possible, unanticipated life events can drastically impact your credit rating, taking years to rebuild. With free credit score companies running television and radio ads around the clock, it’s hard to ignore the importance of knowing and constantly improving this inseparable financial accessory. But why are credit scores so important? And what’s a realistic credit score goal? In this article we’ll break down the logic behind banks, employers, and even potential spouses (seriously) eager to know where you stand on the credit barometer, and how you can rebuild a less than attractive credit score in 10 steps.

Credit is attached to responsibility

Your credit card serves as an excellent backup plan for emergencies or the occasional “splurge” purchase. In an ideal world, all credit users would pay their balances in full and on time...every time. Unfortunately, finances just aren't that simple. Unforeseen circumstances - like suddenly losing a job or unexpected health issues- may cause hiccups to your payment schedule.

For many, maintaining a “good credit score” is synonymous with responsibility. A potential employer may run your credit to get an understanding of your characteristics. A candidate with a lower credit score may give the impression of being irresponsible or reckless. An employer may assume this irresponsibility will transfer to the candidate’s work ethic.

When applying for large loans, electricity plans, or even renting an apartment, banks and retailers need proof that you’re as reliable as you may claim to be. Credit scores establish credibility and offer justification for offering a loan, taking you on as a customer, or approving you as a tenant in an apartment. Would you loan money to a friend known for never paying back others? What about allowing your friend to borrow your car when they have a frequent history of accidents? Most businesses simply do not want to take the risks associated with bad credit.

Credit can even play a role in marriage- or lack thereof. With 45% of marriages ending due to financial instability (New York Times), many individuals want to ensure their partners are money-wise. A credit score is an immediate indication of someone’s ability – or inability- to uphold financial responsibility.

What credit score should I aim for?

An important fact to remember is that credit scores are determined by various credit score models with different ranges. The most popular model, the Fair Issac Company (FICO), is used by popular credit reporting agencies like Experian, Equifax, and Trans Union with a scoring range of 300 - 850. Some sites like CreditKarma.com use Vantage Scores that use scoring models created collaboratively by all three agencies.

Putting a number on the “perfect” credit score can become slightly difficult, but the general rule of thumb is to strive for the score closest to 850. Scores below 550 are considered poor, while those around 650 are considered average. Anything over 750 is considered excellent.

You can also compare your score to others around your age. Based on Credit Karma’s research data of thousands of random credit scores, individuals between 18 and 34 typically had an average score of 630.

Those between 35 and 54 averaged around 650, while those over 55 typically maintained scores closer to 700.

How can I improve my score?

Rebuilding credit takes time, effort, and strategy. Begin implementing practices that won’t only help increase your score temporarily, but make it easier to maintain the high score you worked so hard to obtain.

Step 1

Find out what you owe.

You may owe various amounts to different collection agencies. It’s important to create an organized list of individual bills with their current balances. Typically these bills will be sent to your home directly, but if you move frequently, it’s easy for your paper trail to get deferred. You can also opt to pull a free annual copy of your credit report to find out what your lenders are reporting. The Fair Credit Reporting Act (FCRA) gives all American consumers the right to access a free annual credit report from all three major credit bureaus (Equifax, Experian, and TransUnion.) Request a copy of your credit report from annualcreditreport.com.

Step 2

Check for errors

Once you’ve gotten your credit report, complete a thorough review to check for errors. In 2013, a Federal Trade Commission study reported one in four consumers discovering errors on their credit report. Look for correct information regarding your identity- like the spelling of your name or current address. Vetting your credit report regularly will allow you to quickly correct and remove any false information or fraudulent accounts.

Step 3

A major impact in calculating credit scores is determining an individual’s credit utilization ratio. Credit Utilization is determined by your total credit card balances dived by your total credit card limits. The general recommendation is to keep credit card utilization under 30%. If you’re credit utilization is tipping 90%, chances are your score is below 600, a less than ideal position on the credit score range. Interestingly enough, those with 0% credit card utilization will also face strikes against their score. According to Credit Karma, credit utilization between 10 and 20% had the highest average credit scores, around 735. Your credit report will calculate your total credit limit and total balance. You can get a good idea on the amount you should charge to your credit cards per month while maintaining credit utilization under 30%.

Step 4

Like we discussed before, companies and lenders want to validate your credit history before making a lending decision by running a credit inquiry. There are two forms of credit inquiries: soft and hard. While soft inquires may be included in your credit report, they won’t affect your credit score in anyway. Checking your own credit, being pre-approved for credit cards, or background checks by employers all fall under “soft inquiries.”

Hard inquiries, however, can have a negative impact on your credit score. Some examples include applying for more credit cards, requesting a credit limit increase, or even getting a new electricity plan. Most electricity companies require credit checks to determine if a customer requires a deposit. You can avoid this unnecessary hit by opting for companies willing to forgo a credit check.

Frontier offers two products that not only avoid hard credit inquiries, but offer various plan terms at competitive rates. The Pay As You Go plan gives customers the power to control their electricity bill while avoiding a deposit and an early termination fee. The Check Free product gives customers the flexibility to choose different term length plans such as 6 month and 12 month plans.

Step 5

Stop using different cards for different purposes.

One of the quickest ways to improve your score is eliminating “nuisance balances.” These are small balances on a number of credit cards. Perhaps you feel it’s smarter to charge $30 to one card, and then charge $50 to another. Not only are you making your life more complicated (forcing yourself to remember to pay to multiple credit lines), but you’re slowing the rate at which your credit score will increase. The best strategy is to pay off credit cards on which you have smaller balances and select one or two go-to cards that you use for everything.

Step 6

What’s worse than piling credit card balances? Nasty interest rates that can double your financial obligations to any particular credit card company. While all credit cards incur interest, some are substantially higher than others. Department store credit cards typically have abnormally high annual percentage rates (APR). If you can’t avoid these accounts all together, focus on relieving these balances sooner than others with lower interest rates. In the end, you’ll keep more money in your pocket.

Step 7

Ready for a plot twist? All debt is not bad debt. Some believe that old debt left lingering on their credit report is detrimental to their credit score. Once certain liabilities transition into assets - like paying off a car or a home – many feel a sense of urgency to get it removed from their credit report. Think about it: old debt is your greatest advocate. It shows your ability to manage a loan and pay it back in a timely fashion. The more “good” debt on your credit score, the better. You can do this by keeping old accounts open where you’ve had consistent repayment history.

Step 8

Always pay bills on time

Late payments are one of the easiest ways to drown your credit score. Your payment history accounts for a whopping 35 percent of all components in calculating your score. Some companies will report your late payment to collection agencies as early as 48 hours after a missed payment. Managing multiple accounts and bill due dates can become overwhelming and easy to forget. Online banking allows most individuals to use auto-pay services that automatically send or withdraw payments on the day of your choice. Set up a minimum payment amount for each account. The auto-pay function serves as a cushion, assuring you never miss a payment.

Step 9

Things happen, and (sometimes) credit card companies understand that. Perhaps you fell behind on a few payments during a time of unemployment last year. While you’ll still be responsible for your past-due accounts, you can ask creditors to remove or stop reporting negative information to your credit report. Consider writing a letter to your credit card company highlighting your pervious good history as a customer (this is why paying on time is so important) and using it as leverage to report the account as a “good-will adjustment.”

Step 10

Have you ever opened a friend or family member’s freezer to see a container of credit cards? Chances are they were using it as a safe storage place for cards to accounts they no longer used. The logic behind the madness is maintaining a lengthy credit history. Your credit score incorporates the average age of your credit accounts, and canceling cards could potentially hurt your score. Due to the credit crunch, the credit card industry has become more proactive in closing inactive accounts. To avoid this, make small purchases on your old accounts every few months. Don’t forget to pay the balance in full!

The difference between a bad credit score and a great one could be something as important as being approved for a home loan or getting a great interest rate on your dream car. Credit is just as stuck to you as your own nose! Working to maintain the best score will help you make some major financial leaps. You may even finally get that vacation home in the Caribbean!