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4 ways to improve your credit score

Consumers are getting a better grade when it comes to how they use credit these days.

Nationally, credit scores are slowly and steadily starting to improve as more consumers who use credit are managing it more effectively. A recent report on FICO scores—the most widely used credit scoring system—found the national average score is currently at its highest level in nearly a decade.

It's an encouraging trend, since a credit score is one of the most important factors that lenders use to get a snapshot of risk as they decide what rates to offer on credit cards, private student loans, car loans, home insurance and mortgages. The higher the credit score, the better the rate for which consumers will qualify.

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Your FICO score can range from 300 to 850. In April 2015, the average FICO score was 695 up from 688 in October 2005. According to Credit.org, a good credit score is above 680, but those with scores of 740 or higher are considered excellent. Those will allow you to quality for the best rates.

FICO scores are calculated from many different pieces of credit data grouped into five different categories: new credit, length of credit history, types of credit in use, and the most important: your payment history and the amounts you owe.

Late payments will lower your FICO score, but establishing or re-establishing a good track record of making payments on time can raise your score. So how can you improve your score?

Check credit report for free

The first step in fixing your credit. Check your report—it's free.

The Urban Institute found that 35 percent of Americans have debt that has gone into collection and 5.3 percent have debt that is at least 30 days past due. Yet, many consumers may not be aware of late payments and unpaid debts until they check their credit report. So do that first.

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Go to AnnualCreditReport.com to request a free copy of your credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Your credit report contains the information that is used to calculate your score. So you want to make sure there are no errors.

You can also get your credit report directly from the credit reporting agencies for a small fee, but there are other ways to get a free credit score.

Get your free credit score

You can get free credit scores from Quizzle.com, Credit.Com and CreditKarma.com—which may draw on your credit information from one or more of the credit bureaus and also offer resources to help you improve your score.

And, as of August 2015, the following credit card issuers also provide customers access to their FICO credit score for free: American Express, Barclaycard US, Discover, First National, Citi, Chase and Bank of America.

Pay on time

The most important factor impacting your credit score is your payment history.

If you have missed payments, start paying regularly and stay current. Use online bill pay through your bank to schedule automatic payments for your monthly credit card, utility, rent, mortgage and other bills. Missed or late payments are not easily fixed. But the longer you pay your bills on time the more your score will increase.

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"Pay on time. Pay off or down the higher interest balances - and take the discretionary income you have to work down that debt," said Susan Keating, president and CEO of the National Foundation for Credit Counseling (NFCC).

Get professional help

Go to a non-profit credit counseling agency to work with a financial professional to help you decrease your total debt load, better manage your money and improve your credit score.

You can schedule a one-on-one consultation through the NFCC's Sharpen Your Financial Focus program at SharpenToday.org.

Research from Ohio State University shows that nearly three-quarters of the clients who participated in the Sharpen program reported paying their debt more consistently—and clients improved their credit score by 20 points on average in less than two years.