Improving your credit score is one of the best things you can do for your financial well-being. The first step is understanding that credit scoring agencies like FICO use five primary variables to calculate your score:

• Payment history
• Amounts owed
• Length of credit history
• Credit mix
• New credit

These categories are designed to show credit card companies and lenders a complete picture of an applicant’s creditworthiness. Some, like payment history (35% of your score) and amounts owed (30% of your score), are weighted more heavily than others. Learn how to improve your credit score with these tips:

1. Make consistent on-time payments

Late and missed payments can cost you a lot of points on your credit score. So, making consistent on-time payments is a great way to boost your score. Set your credit card and loan payments on autopay, even if it’s just for the minimum balance due. That will ensure that you’re never late and should raise your credit score over time.

2. Keep credit utilization low

Credit utilization is the available credit you use to make purchases each month. It’s a major factor for lenders because it directly relates to your debt-to-credit ratio. Keeping credit utilization down will help to keep your credit score up. Try not to run up or max out your credit cards. It’s important to keep your credit utilization below 30%, and even lower if possible.

3. Don’t apply for too many credit cards

Credit companies do a hard inquiry on your credit report when you apply for a new card. That can drop your credit score a few points, and is also logged in the new credit section of your credit report. Having too many new credit cards or loans can make you appear riskier to lenders. So, it’s smart not to apply for multiple new accounts all at once unless you absolutely need to.

4. Take out a personal loan to improve your credit mix

This is a twofold suggestion. Diversifying your credit mix by getting a personal loan can help boost your credit score if all you previously had were credit cards. You could also use this loan to consolidate some of your debt, lowering the amounts owed on unsecured debt. The credit score increase may not show up right away, but you’ll see the positive effects over time.

5. Use the debt snowball method to pay off credit balances

The debt snowball method is a debt payoff strategy where you make all your minimum monthly payments on credit cards and loans, then take any funds you have left in the budget and put them toward the credit account with the smallest balance due. Once you’ve paid off the smallest loan, you can move on to the next smallest, until all debts are paid off. The on-time and extra payments improve your payment history while cutting down on the debt you owe.

The bottom line

The credit scoring system was designed for lenders to assess credit risk, but consumers can take control of their credit score if they know how it works. You can do this by paying credit card and loan bills on time, keeping credit utilization low, not applying for too many credit cards, taking out a personal loan to consolidate credit card debt, and using the debt snowball method to pay off debt.