Do you want to build your credit? How long does it take to build credit? Learn what it takes to build a good credit score in just a few simple steps.
When you apply for personal, auto, mortgage, or home equity loans, most lenders will first conduct a credit check. This gives them an overview of your credit history, helping them decide whether to give you the loan. Now, that makes credit score a crucial aspect of your financial future, unless you are planning to live on payday loans only.
Therefore, if you haven’t started building your credit, you should certainly start thinking about it. Whether you are starting as a student, a new resident in the US, or want to rebuild after being dormant for a while, now is the right time.
But how long does it take to build credit? Most people will have this question in their minds. Is it a few days thing, or do you need to wait for months or even years? This article gives you a comprehensive overview of how long it takes to get on the right side of credit books and what you can do to make the process faster.
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How Long Does It Take to Build Credit: Top Facts
While building credit might not be a few days affair, it also won’t take years to achieve. If you are starting from scratch, you need around six months to get your first credit score.
However, you should note that this is only the first step. You need more than these six months to get a good credit score that lenders might consider when giving you a loan.
Therefore, when waiting for the six months to elapse, ensure that your behavior aligns with what lenders seek. This might help when trying to achieve that excellent credit score you seek.
Also, you should not only strive to get a good credit score but rather create financial habits that will maintain those good scores for long. Remember that if the score drops, rebuilding it might be even harder than starting from scratch.
That’s why you must understand how the credit score works and how they are calculated. This way, you know what to do and what not to.
Understand the Credit Score Calculation to Help Build Your Credit
It will be harder to start building your credit score without understanding what it entails and how it works. That’s why you need to take your time and learn the principles governing credit score calculations.
Generally, there are various credit scoring standards and models that you can try to understand. However, FICO and VantageScore lead the pack. They are the most widely used credit scoring models, granting scores between 300 and 850.
With FICO, a score between 670 and 739 denotes a good credit history. A score between 740 and 850 signifies an exceptional credit score.
On the other hand, the VantageScore model classifies scores between 681 and 780 as good. Scores from 781 to 850 are rated exceptional.
These scores represent the level of risk a borrower poses when applying for a loan. And, various lenders will require a certain score level before lending out money to an individual. The higher your credit score is, the better your chances are of getting that loan.
When calculating your credit score, different scoring models will use different algorithms and consider varying factors. Here is how FICO determines your creditworthiness.
- 35% – On -time payments
- 30% – Credit utilization
- 15% – Credit history length
- 10% – Credit mix
- 10% – Recent borrowing activities
All these factors must be considered when giving you a score. Therefore, don’t concentrate on one and forget the others. For instance, if you make on-time payments but have a poor credit mix, the latter will harm your efforts.
Best Ways to Build Credit
1. Get Yourself a Credit Card
A credit card is one of the easiest ways to build your credit. If you can use it wisely and make your payments on time, you will positively impact your credit score.
When applying for a credit card, you have three options: get a regular unsecured credit card, a secured one, or become an authorized user of someone else’s credit card. A secured credit card is easier to get, doesn’t allow spending beyond the maximum limit, and demands a security deposit.
On the other hand, an unsecured card doesn’t require security, allows you to spend even beyond the limit (although detrimental to your credit score), but it’s much harder to get.
As for becoming an authorized user, you just need to get a primary cardholder willing to include you as a user on their credit card. But remember, the actions of the primary cardholder will affect your credit score. Therefore, chose someone who also minds their credit future.
The good thing with credit cards is that most issuers will report your monthly repayments to the credit bureaus every month. This means that if you use the card and make prompt payments, your information will reflect on the bureaus and help grow your credit.
How Fast do Credit Cards Build Credit?
Various credit scoring models, including FICO and VantageScore, rely heavily on your credit utilization and on-time payments. Therefore, if you continually use your credit card and repay in good time, you increase your credit score.
However, remember to maintain your spending below the set spending limit (30%). Overspending will harm your credit score. Best scorers usually spend less than 7% of their credit limit.
If you consider all these factors, it’s easy to improve your credit score within only 30 days. But, the amount gained will depend on your current score. People with lower scores can easily gain more than people already having a strong credit score.
Always try to keep your balance low by paying for your purchases on time. This way, what the issuer submits to the credit agencies, will favor your ratings.
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2. Timely Payment of an Installment Loan
Besides credit cards, instalment loans (personal loans, student loans, mortgages, auto loans) can also help improve or grow your credit score. However, this will only happen if you make timely payments. If you continually have late payments or defaults, you significantly harm your credit.
Your credit mix is a major determinant of your FICO score. Without the right mix, you might be losing up to 10% on your credit score. Therefore, try to have different credit lines to ensure you get the desired mix for a higher credit score.
To ensure that you make on-time payments on your instalment loan, only borrow what you can afford to repay. Do not bite more than you can chew since it will hurt your credit.
One of the easiest instalment loans to start building your credit is a student loan. Since most of them are federal loans, they won’t conduct a credit check. This means that even someone without a credit score can apply for one.
Alternatively, if you want a personal loan but can’t qualify for one, you can request someone to cosign. However, ensure that you can repay that loan so as not to burden someone else.
3. Pay Your Bills on Time
Paying your bills on time is one of the most effective ways of building your credit. On the other hand, late payments will harm your credit and squash all other efforts of building your credit score. This means that even if you are doing everything else right, your habit of late bills payment can’t go unnoticed.
The worst thing is, late payments can reflect on your credit history for even up to seven and a half years. Now, that’s a long time without having access to loan services.
Whenever you miss a payment, as it’s sometimes inevitable, always call your creditor to prevent that information from reaching the credit bureaus. And, ensure you pay as soon as possible after this.
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4. Use Rent and Utility Payments to Build credit
Most of our monthly bills, including rent, utility, and cell phone, do not appear in our credit score calculations. And, they can really help in building credit.
For this reason, it’s important that you get them to reflect on these calculations. But how do you do that?
Well, when it comes to your rent payment history, you have several rent reporting services you can use. That’s if your landlord doesn’t submit the information directly to the bureaus. Some of these services include RentReporters, RentTrack, PayYourRent, etc.
However, you should note that not all credit scoring models recognize rent payment reports in their calculations. For instance, while VantageScore accepts these reports, FICO doesn’t use them. But, that shouldn’t worry you since lenders and creditors will still see these reports. And it might have a positive impact.
When it comes to other monthly bills, including water, electricity, cell phone, internet, gas, etc., Experian Boost is the best reporting service. You only need to link the free Experian Boost to your bank accounts. From here, it scans all your monthly bill payments, and you can choose the payments they add to the report.
When a creditor checks your credit score using Experian data, your timely payments will reflect.
Best Ways to Cut the Time It Takes to Build Good Credit
Our main question is, “how long does it take to build credit?” And, we have seen this to be between 3 and 6 months. But, we also need to know if it’s possible to make the whole process shorter.
The truth is, if you are starting from scratch, you might have to wait for those six months before getting the score. However, there are a few tips you can employ to get on the good rating levels faster. Some of the most effective tips include:
Prompt Payment of Bills
As mentioned earlier, paying your bills on time helps to build your credit. Even better, it helps to quicken the process.
Therefore, if you want to shorten the time it takes before getting a good credit score, pay all your bills in good time. If you let your bills go past the due date, you spoil your chances of building credit fast.
Don’t Exhaust Your Credit Card Limit
While you are given the credit card to enjoy its credit services, overusing it harms your credit score. In fact, it’s recommended that you don’t spend over 30% of the credit card’s limit. As long as you maintain an average utilization, your chances of getting a higher credit score are high.
Lenders and creditors want to see your ability to pay. And, what better way to display this than having a variety of current debts? For instance, you can get a personal loan or an auto one in addition to your credit cards. But, ensure that all instalments and payments are made in good time.
Keeping Open Credit Card Accounts
Getting a credit card isn’t enough. Using it is what gets you the credit score you want. Please don’t open a credit card account and leave it dormant. Credit utilization is crucial in calculating your credit score. It accounts for around 30%.
Ensure you Qualify for a Card Before Applying
Before you start your credit card application, ensure that you’ve done all the necessary research and that your chances of getting the card are high. Why do we say this?
Every time your credit card application is denied, it means you have to reapply again later. Consequently, every new application calls for an inquiry on your credit history. These declines lower your credit score every time.
How Long Does it take to Build Credit: Common Mistakes to Avoid
If you want to grow your credit score faster, try to avoid these mistakes.
- Late payments – creditors report any payments falling behind with over 30 days to the credit agencies. The longer you stay without paying, the more harm it causes to your credit score.
- Overcharging the credit card – spending above the credit limit damages your credit history.
- Closing of accounts – opening accounts that you don’t use and closing them affects your credit score negatively.
- Applying for credit cards just for the sake of it – If your applications are denied, it lowers your credit score. And, just a few points off your score can make a huge difference to lenders and creditors.
All this shows that building credit isn’t instant. Therefore, to answer the question, “how long does it take to build credit?” you must be willing to consider all these factors. No single one can increase your credit score alone.
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