Credit scores cause many people stress and can have a profound effect on your financial health and well-being. While most people understand that their credit scores are important, they don’t know what to do about bad credit.

You’ll get mixed messages when you try to research the issue. There are companies that make money by offering credit repair services, lawyers that specialize in bankruptcy, and firms that promise to erase tax debt. Of course, their services come with hefty fees and they aren’t always guaranteed.

Truthfully, there’s a lot you can do on your own, using tools readily available on the Internet, to improve your bad credit. Before you can fix your bad credit, you need to understand the areas that need improvement.

Here are some things that will negatively affect your credit scores:

Making a late payment on a credit card or loan to a company that reports to TransUnion, Equifax, or Experian

Carrying a credit card balance from one month to the next that equals more than 30% of your credit limit

Having little or no recent activity on your credit reports

Canceling credit card accounts that you’ve had for years

Here are some things that people worry about, but have no effect on your credit scores:

Payments to any company or firm that does not report activity to any of the three major credit reporting agencies

Late payments that happened more than seven years ago

Bankruptcies from more than ten years ago

Your spouse’s payment activity on accounts that do not have your name attached

Your race, sex, or age

The credit score formula

For years, the FICO credit score was a mystery. Now, we have a solid understanding of the factors that go into creating an individual credit score.

35% – your payment history (new activity matters more than old activity)

30% – your current debts

15% – your history of handling credit

10% – how many hard inquiries you’ve authorized in the past two years

10% – what types of credit you currently use

1. Check your credit

Many people haven’t looked closely at their credit reports. They think it’s a difficult process, they believe they won’t understand their credit report, or they are afraid of what it will say.

Everyone with a social security number has the right to see each of their credit reports on file with TransUnion, Equifax, and Experian. You can look at the complete reports from each reporting agency once every 12 months at no charge. The federal government recommends using www.Annual CreditReport.com to access your reports.

2. Look for mistakes on your credit reports

More than one in five Americans have a mistake on their credit report that negatively affects their FICO score. It’s worth your time to look closely at each of your reports to make sure yours is correct.

Here’s what to look for:

Accounts that are more than seven years old reporting late payments

Accounts that don’t seem familiar to you

Accounts you closed, but are still open on your report

Incorrect date of last late payment or the date the account was opened

Accounts appearing multiple times, with multiple collection agencies

Incorrect current balance

Incorrect credit limit

These are just a few of the common errors that could hurt your credit score, forcing you to pay higher interest rates or even causing you to get turned down for a loan or new line of credit.

3. Ask the credit reporting agencies to correct mistakes

You have the right to request corrections to anything you believe is incorrect on your credit report. You can file that request online at the individual credit reporting agencies websites:

The credit reporting agency will contact the company that reported the incorrect information to let them know that they have 30 days to respond with proof that their report is correct. If they do not respond within 30 days, the credit reporting agency must remove the information from your file.

4. Pay down credit card balances

If you have credit cards with balances equal to or more than 30% of your credit limit, pay down those balances. Your total available credit should be more than 70% of your total credit limit.

Ideally, you’ll carry a balance on all but one card, and have a total of three credit cards. Your maximum balance should stay below 8.9% to have the largest positive effect on your credit score.

Here’s an example:

Capital One: $1,500 credit limit/$500 balance

Discover: $2,000 credit limit/$2,000 balance

Costco Mastercard: $2,000 credit limit/$800 balance

Total Credit Limit: $5,500

Total balance: $3,300

Percentage of credit limit charged: 60%

In this scenario, even if all payments are reported as being made on time, this person’s credit score is suffering. Paying off about $1,700 of this debt right away would give this FICO score a boost in 30-45 days. Paying off one card completely and keeping the balances on the others well below 10% will produce the best possible result.

Going forward, if you resolve to keep your credit card balances below 30% of your credit limit, make all payments on time, and keep your credit file free from mistakes, your score should continue to rise.

Rachel Morey

Writer Rachel a writer based in the Midwestern United States. She specializes in personal finance, insurance, retirement, and credit. Her work has appeared on over 100 websites, for example print publications including Worth, Kiplinger’s Retirement Planning, Money Today, and Startup. Read more »