"How to improve your credit" is one of those internet searches that happen all too frequently. There’s no magic bullet, but it can be done by making simple yet very effective changes to how you manage your debt.
Before we get into how to fix your credit, let’s talk about why you might need to make it better. Notice I say need, not want. There are times when you do need good credit, but most of the time, it just doesn’t matter. Credit bureaus have you tricked. They’ve convinced you your credit score is the perfect measurement of your financial life. It’s not.
You will need a decent credit score if you are going to buy a house, car, or other large purchase on credit.
You will need a decent credit score if you are going to refinance your home or take out student loans.
You may even need a good score when you rent an apartment or if you open a store credit card — don’t open a store credit card! — but most of these events only happen a few times over the course of your financial life. If you’re making smart financial decisions, you’ll likely only need to open a line of credit no more than 10-15 times in the course of your entire adult life.
So now that we’ve established there are really only a handful of times when your credit score actually matters, let’s assume that you’re reading this because you actually do need to improve your credit. It’s important to understand what makes up a credit score so we can figure out what to change to make the biggest impact.
This pie chart shows what makes up your credit score. As you can probably guess, the fastest ways to improve your credit score are to:
(1) improve payment history
(2) reduce amount owed.
There’s no silver bullet to fixing your credit no matter what you hear on TV. It’s just a matter of making payments on time and reducing the amount of debt you have. Simple but extremely important steps will make the most progress in the shortest amount of time.