Credit scores can make a big difference in your life, in ways you might not realize.

While there are some gray areas in the way these scores are calculated, there are also some clear ways you can start to move the needle in the right direction — actions that can improve your credit score in just a few months.

Your history of making payments on time (or not) has the largest effect on your credit score, accounting for 35 percent of the figure. Changing any bad habits in that regard can make a difference — fast.

“It’s frustrating for a lot of consumers, but being late just once on a single credit card can hurt your credit score,” said Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, better known as FINRA.

Managing the amount of money you owe is the next biggest factor, counting for about 30 percent of your credit score. Lenders look at how much you owe in total, compared with the amount of credit dollars you have available.

Companies calculate credit scores differently, but a score of 720 — on a range of 300 to 850 — usually is considered good, Walsh said.

“The credit score is like your financial GPS,” she said. “It tells lenders how likely you are to pay back a loan that they might give you. It’s a barometer of what kind of risk you might present as a borrower. If you’ve got a good score, that can position you well to get favorable terms for a loan you might apply for.”

If the lender considers the score too low, they won’t offer you a mortgage, car loan, personal loan or other financial product, at least not at the rate you’re seeking.

Landlords may look at your credit health in deciding whether to rent you their property, which could be a problem for military families who move quite a bit. Insurance companies and others may use credit scores in determining pricing.

SCORE VS. REPORT

Your credit report is a snapshot of your financial situation at a given point in time. Your credit score is living, breathing and changing, said Andia Dinesen, a military wife who is an accredited financial counselor and has worked with military members and their families. She’s the vice president of communications and operations for the Association of Military Banks of America.

The report comes from information supplied by lenders such as banks, credit unions and credit card companies to the three credit reporting agencies. It includes details about the type of account, the date it was opened, the credit limit, the account balance and the credit history.

The reporting bureaus also collect public information regarding bankruptcies, foreclosures and other transactions from state courts, as well as details on overdue debts from collection agencies.

The score is calculated from information within those reports. Active-duty troops and their spouses can get a free FICO Score (put out by the Fair Isaac Corporation) via the FINRA Investor Education Foundation.

According to myFICO.com, the FICO score calculation generally comes from five categories: Payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and credit mix (10 percent — the more diverse your credit, the better your score here).

Even a small uptick in your credit score can save thousands when it comes to interest rates on mortgages and other loans. (nito100/Getty Images)
Even a small uptick in your credit score can save thousands when it comes to interest rates on mortgages and other loans. (nito100/Getty Images)

RUNNING UP THE SCORE

Dinesen said when she was working with military members and spouses on their finances, most of the problems with lower credit scores were because of late payments.

“Most people don’t realize how much it affects their credit score,” she said.

Clients who stuck to a plan to improve their finances would see increases in their scores by the next time she visited with them, just by paying their bills on time, she said.

Military installations have personal financial management experts who advise service members and families on how to improve their finances, and thus, their credit scores. Military OneSource also has free financial counseling available and can connect troops with counselors.

Walsh also suggested contacting a local not-for-for profit credit counseling agency through the National Foundation for Credit Counseling.

For some people, it takes a long time to beef up the credit score. Walsh cautions people to be aware of “that personal balance sheet” when paying for something with a credit card, for example. Consider whether you can pay off that balance at the end of the month, and if not, what adding to your overall debt will do to your credit score.

Once you’ve paid off a credit card, don’t cancel it and stop using credit. The length of your credit history matters. Put the card some place where it’s difficult to get to, but use it once or twice a year to buy something small, and pay it off.

SCORE? WHAT SCORE?

According to myFICO.com, to receive a valid FICO score, there must be at least one account opened for at least six months, and at least one account that’s been reported to the credit reporting agencies within the last six months.

That means “a lot of very young military members have no credit,” Dinesen said.

If they’re determined to buy a vehicle on credit, for example, they may pay exorbitant interest rates.

What’s the fix? Dinesen advises working with a bank or credit union to get a secured credit card — users deposit an amount, such as $500, that becomes the credit limit. By using the card within the limits and paying off the bill on time, you can build a credit history.

Need that car now? All is not lost, Dinesen said: Try to refinance later, at a lower rate, after you’ve established a credit score … and made all the payments on time.