To take the right steps to boost your score, you need to start by understanding the basics of credit scores. The FICO credit score is the most widely used score in lending decisions and ranges from 300 to 850. A FICO score of 750 to 850 is considered excellent, and those with a score in that range have access to the lowest rates and best loan terms, according to myFICO.com, the consumer division of FICO. A score of 700 to 749 is good, and those with a score in this range will likely be approved for loans but might pay a slightly higher interest rate. A score of 650 to 699 is considered fair, and those with a score in this range will pay higher rates and could even be declined for loans and credit, according to myFico.com.

The three credit bureaus – Equifax, Experian and TransUnion – also have created the VantageScore, which ranges from 501 to 990, and the VantageScore 3.0, which ranges from 300 to 850 (to mimic the FICO range). The VantageScore is growing in popularity among lenders but still isn’t as widely used as the FICO score. No matter the name, scores can vary by credit bureau depending on when the score was calculated and what specific method was used to make the calculation. Each credit bureau has its own formula.

You can get a free VantageScore 3.0 and a credit score from Experian through Credit.com. Credit Karma provides a free VantageScore and a TransUnion credit score with its credit report card. And Quizzle offers a free VantageScore 3.0 from Equifax. Or you could pay $19.95 per FICO score from each of the three bureaus at myFICO.com.

Once you know your score, you can start taking the right steps to improve it. To do so, follow these six habits of people with excellent credit scores.

1. Pay on time. Payment history is the top factor in most credit scoring models, says Gerri Detweiler, director of consumer education at Credit.com. So payments that are 30 days or more late can quickly drag down your credit score. And one late payment is enough to hurt your score, she says. According to myFICO.com, 96% of consumers with a credit score of 800 pay credit accounts on time; 68% of those with a score of 650 have accounts past due.

Even if you can only afford to pay the minimum, always pay on time because that will have a bigger impact on your score than the amount you pay, Detweiler says. Set up automatic bill pay through your credit account or bank account so you don’t miss a payment.

2. Minimize use of available credit. Usually the second most important factor in your credit score is how much debt you have compared with the amount of available credit you have, Detweiler says. Those with a credit score of 800 use only 7% of their available credit, on average, according to myFiCO.com. But most consumers with a score of 650 have maxed out their available credit.

You can see a significant increase in your credit score shortly after you pay down highly utilized credit accounts, Detweiler says. If your credit cards are maxed out and you can’t pay them off quickly, she recommends consolidating your balances with a personal loan from a bank because the so-called credit utilization ratio (total credit balance divided by total credit limit) for those loans isn’t calculated in the same way and doesn’t weigh heavily on your score.

3. Maintain low or no balances. People with excellent credit almost always keep low balances on their credit cards, and often don’t pay interest because they pay their balances in full every month, says Jason Steele, a credit card expert for CompareCards.com. In other words, they only use cards for things they can afford to pay off with cash, he says. To become disciplined with credit and avoid racking up balances, Steele recommends logging into your credit account online after making a purchase to pay it off. If you’re already carrying a balance, see How to Pay Off Your Credit-Card Debt in a Year for steps to pay off what you owe.

4. Have a lengthy credit history. Those with a credit score of 800 have an average account history of 11 years (with oldest account opened 25 years ago) versus an average account history of seven years (with the oldest account opened 11 years ago) for those with a score of 650, according to myFICO.com. So opening several new accounts at once can shorten the average age of your credit history, Detweiler says. And closing old, inactive accounts also can hurt. This move can increase your credit utilization ratio since closing an account means you no longer have access to that available credit.

5. Only apply for credit when necessary. It’s important to have a healthy mix of lines of credit, including credit cards, auto loans, mortgages and even personal loans, Steele says. This shows that lenders are willing to trust you with their loans. And the more available credit you have, the lower your credit utilization ratio will be, he says.

If you’ve faced credit difficulties in the past and are unsure which of your accounts are currently outstanding, ordering a copy of your Experian credit report will be very helpful. Checking your credit report won’t provide an exhaustive list, but can be place to start. The report lists all of your debts, the amount outstanding and provides contact information for your lenders.

Getting Your Experian Credit Report

By law, you are entitled to one free copy of your credit report per calendar year. The quickest way to get your free annual report is to order online at www.annualcreditreport.com. You can also get your free Experian credit report at any time with no credit card required.

Your credit report will list detailed information about each account that is reported to Experian. The report includes the business name and address and the balance on the account. Your credit report will also list any public record items, such as civil claim judgments or tax liens.

A Debt You Owe May Not Appear On Your Credit Report Right Away

Most major lenders report to Experian, but they are not required by law to do so. In some cases, a creditor may choose not to report an account to Experian directly, but they may later choose to sell the account to a collection agency that does. In that case, the collection account may appear on your credit report even though the original account does not. In most cases, the collection agency will list the original creditor as part of the account information.

A creditor may also choose to file suit against you in an attempt to recover the amount owed. Once a judgment is filed against you, it will become a matter of public record, and will most likely appear on your credit report. The judgment will list the name of the plaintiff along with the amount owed.

You May Owe a Debt That Does Not Appear on Your Report At All

Because creditors are not required to report their account information to Experian, your credit report may not be a complete list of every debt you owe. It’s possible that you may have an outstanding debt that does not appear on your report.

Some creditors may choose to report to one or two of the three national credit reporting agencies. Therefore, just because a debt you owe isn’t appearing on one credit report does not necessarily mean it isn’t appearing on the others.

It’s a good idea to order a copy of your report from each of the three major credit reporting agencies and then compare the information from each. If you do have a creditor that does not report to any of the credit reporting agencies, you will need to go over past bills and account statements or contact the company directly to determine what you owe.

It’s also possible that a debt you still owe no longer appears on the credit report. Debts, including collection accounts, are deleted seven years from the original delinquency date of the debt. While the account may be deleted from the report, collection agencies may still be able to contact you to request that you repay the debt. Just because the debt is deleted from the credit report doesn’t mean that you no longer can be legally responsible for repayment.

Installment Credit is a Loan with Specified Monthly Payments, Terms, and Interest

An installment loan is a credit account where you borrow a fixed sum of money and agree to make monthly payments of a set dollar amount until the loan is paid off. An installment loan can have a repayment period of months or years. Some common types of installment loans that are often seen on credit reports are home mortgages and car loans, and typically involve fixed or variable interest rates with some requiring additional fees.

Unlike a revolving account, once an installment loan is paid off, it is considered closed. Paying an installment loan as agreed and in full will have a positive effect on credit scores. However, paying the loan off early probably won’t have a significantly greater impact on the scores than simply paying it off on time. A closed account in good standing will also stay on your credit for 10 years and will continue to benefit your credit standing.

Credit Card Accounts are Revolving Accounts with Credit Limits

A credit card account is an account that lets you carry a balance from month to month, or revolve. In your credit report, a credit card account is shown as a “revolving” account. The revolving account has a limit on the maximum balance you are allowed to charge up to.

With a revolving account, you decide how much to charge every month and how much to repay. When you carry a balance over from month to month, your incur interest fees, which add to your total balance owed.

One of the top factors in determining your credit scores is your utilization rate, or your balance-to-limit ratio. Your utilization rate is calculated by adding up the total of all your credit card balances and dividing that number by the total of all your credit card limits. The lower your utilization rate, the better.

Paying off the balances on your friends credit cards will help increase your friend’s credit scores. Doing so can also help her save on interest fees, which would be good for her wallet, too! While paying down high balances on credit cards will usually have a positive effect on credit scores, paying off an installment loan early isn’t as likely to help scores.

Improving Your Credit Score by Paying Attention to Risk Factors

The best thing advice you can give your friend is to order recent copies of her credit reports and scores from each of the three credit reporting agencies.

In addition to the number, she should also receive a list of risk factors that explain what from her credit report most affected the score.

These factors will tell her what on each of her credit reports is having the most impact on her scores currently. Paying attention to these risk factors will help her understand what changes she can make to help increase her scores in the future.

Usually, reducing the balances on your credit cards will have a greater impact on your credit scores more quickly because the utilization rate is the second most important factor in credit scores.

Before signing up for a Debt Management Plan, a counselor will spend 45-90 minutes reviewing your personal finances and budget. The counselor will offer expert advice on reducing debt and controlling spending, and the client will be given a new budget that is customized to his/her unique situation.Most clients benefit from this counseling and education alone, but some clients need the additional help of a Debt Management Plan.

Keep in mind:

• Unsecured debts may be included in the plan; secured debt such as mortgages, home equity loans, and auto loans are not included, nor are student loans.
• Collection debt may be included if the collector has not gotten wage garnishment after receiving a court judgment.
• All of the consumer’s credit cards must be closed, while on the plan, and no new credit may be obtained.
• The Debt Management Plan alone is only part of the solution. Clients are urged to take advantage of all of the free financial education courses we offer.
• The DMP is a voluntary agreement between three parties; the counselor, the client, and the creditor. Each party has certain expectations to meet if the DMP is to be successful.

Counselor’s Part

Our part of the Debt Management Plan includes:

• Budgeting help. We create a workable budget with the client, along with continuing assistance during the life of the plan. We also offer our Power of Paycheck Planning seminar along with other budgeting courses to help our clients refine their budgets over time.
• Liaison between parties. We can serve as an intermediary between the creditor and client, and can speak to either party on the other’s behalf.
• Payment processing. We accept deposits electronically from our clients every month, and then disburse those funds to creditors on a fixed schedule to ensure timely payment.
• Progress report. We prepare a monthly progress report that shows the client what payments were distributed to creditors along with a remaining balance owed on each debt.
• Education. Besides budgeting, we offer free courses and seminars on preventing identity theft, using credit wisely, understanding credit scores and credit reports, surviving a layoff or job loss, financial planning, planning for holiday spending, educating kids about money, avoiding foreclosure, and more.
• Housing counseling. If needed, we have HUD-certified housing counselors who can help our clients who are homeowners.
• Ongoing support. We have support staff standing by to help our current clients if they run into any issues or have any questions.

Creditor’s Part

A Debt Management Plan serves the dual role of helping clients repay their debts while seeing creditors receive the money they are owed. Because they benefit from this arrangement, creditors are willing to work with us in various ways:

• Accept payments. Creditors allow us to transmit payments electronically directly to them, so the funds we disburse on behalf of our clients are transferred quickly and without any complications. Even creditors who don’t offer other kinds of help will accept payments; it’s extremely rare that a creditor will refuse to accept payments through a DMP.
• Stop calling. We can’t make a creditor stop calling to collect a debt, but usually their calls will stop once they’ve received three monthly payments in a row.
• Update your credit report. While on the DMP, your credit report will say that you are enrolled (this has no effect on your credit score). After you complete a DMP and pay off your debts, the creditor will mark the debts as paid in full.
• Concessions. Creditors may waive interest rates, lower monthly payments, re-age accounts to stop late fees, or offer other concessions to help clients successfully complete a DMP. Every creditor offers a different set of concessions, but most of them help in some way.

Client’s Part

The final partner in the Debt Management Plan is the client. The client’s obligations to the Debt Management Plan are crucial:

• Learn. Clients should take advantage of the free education we offer on a variety of topics, including budgeting and using credit wisely.
• Make payments. As long as payments are made in full and on time each month, a client will have no trouble succeeding on the DMP.
• Do not seek new credit. If a client tries to apply for new credit while on a DMP, the other creditors will know about it through the client’s credit report. They will stop offering concessions and reinstate fees and interest rates from before the DMP began.
• Read all statements and our progress report. It’s crucial that our clients monitor the statements they get from their creditors every month. (The creditors will not disclose this information directly to us.) They should compare that information to what’s in our monthly progress report and ensure that everything matches. If anything is different between the creditor statement and what we show in our paperwork, the client should call us right away.
• Call for help. If a client needs any additional advice or assistance, they should call our support counselors right away.

Potential Problems

• Due Dates. Our clients may need to talk to their creditors about shifting payment due dates to ensure that the DMP payment comes in soon enough to make all debt payments on time. Clients may want to pay a month in advance to stay ahead of the due dates and ensure they never have late payments.
• Late Payments. If clients do make a late payment to us, the disbursement we make to the creditors will be late, and the client’s credit report will be negatively affected.
• Missed payments. Clients should call us if they think they might miss a payment for any reason. Creditors may suspend concessions for clients who are delinquent, and they will expect clients to make up the missed payment to get back on track with their DMP.
• Clerical errors. If a payment is improperly credited or the amount is entered incorrectly by a creditor, it could lead to big problems. As always, clients should confirm that our progress report matches the creditors’ monthly statements, and call us if anything is inconsistent.

Step by Step

The Debt Management Plan, Step-by-Step

1. Client receives credit counseling session, which includes a budget and debt repayment plan.
2. Client is offered free educational materials and personalized money management advice.
3. The client’s debt and financial information is entered into our computer system. If the client is a good candidate, a Debt Management Plan is proposed.
4. Proposals are sent to creditors based on the DMP that was created from the client’s information.
5. Clients sign up for automated payments. The client’s monthly payment is transferred automatically every month from the client’s bank account.
6. Funds are distributed by us to creditors using electronic transfers, ensuring payments are received on schedule.
7. We send a monthly progress report to the client.
8. Client reviews this progress report, comparing it to the statements s/he gets from the creditors.
9. When one debt is paid off, the DMP payment remains the same. The extra funds that were going to the paid off account are split up between remaining accounts. This accelerates debt payoff.
10. Client should call us at any time during the life of the DMP to report any issues or concerns, seek additional assistance and advice, or if any of their circumstances change.

Credit Score Impact

According to FICO, a DMP has no direct impact on one’s credit score. Naturally, anything you do with regard to your debt repayment will have ancillary effects on your credit. Because all credit accounts must be closed while on a DMP, one’s score may drop at first. However, if DMP payments are made in full every month, one’s credit will improve over time. Read more about How a Debt Management Plan Affects Your Credit.