How Long Does It Take To Build Credit

How Long Does It Take To Build Credit?

If you have no credit history, it will take at least 3 – 6 months to get a credit score or FICO score. A FICO score is the credit score reviewed by creditors, and they decide if they should lend you money or not.

The quickest way to start building credit is by applying for a credit card. Within the six months, you must be financially responsible and pay off your credit on time to receive a decent credit score. You will not get a good credit score as it takes time to build it up. 

Not paying your credit card balance will result in a bad credit score. It will make it harder to get loans in the future. There are no second chances and will stay on your credit record.

Table of Contents

What is Credit and Why is it Important?

Credit is the ability to borrow money from a creditor. Later, you pay back what you owe to the creditor, which may include interest. A credit score gauges if you’re trustworthy enough to pay back creditors. 

Without a credit score or a good credit score, you cannot borrow large sums of money to finance a car or appliance, a mortgage to buy a home and get a lower interest rate on loans.

Many people don’t have or aren’t ready to spend $20,000+ on a downpayment for a car or house. A good credit score gives you access to future opportunities. 

Who and When are your Credit Scores Review:

• Banks – Applying for loans

• Landlords/ Property Management – Check if you can pay your rent with credit

• Insurance Companies – Determine your insurance rate

• Utility Companies – Review if you’re able to pay utility service

• Employers – Hiring decision

• Government – Lawful purposes

Ways to Build Credit?

Credit Card

If you have no credit history, you’ll more than likely require to get a secured credit card. A secured credit card is for those starting to build credit.

You’ll pay for a refundable security deposit, and it’s to cover any debt you are not able to pay. The deposit will be refunded once the credit card is closed, assuming there’s no debt.

Alternatively, if you’re a student in college you can apply for student credit cards. They’re unsecured credit cards that don’t require you to pay a security deposit and no annual fees.

Be an Authorized User on Another’s Credit Card

You can be under an authorized user credit card holder such as a family member or friend. You’ll get a credit card associated with the account.

Over time you’ll benefit from the account holder’s responsible financial behavior and will improve your credit score. 

As an authorized user, you aren’t responsible for paying the credit card’s balance. You can make purchases on the credit card associated with the cardholder or not. Either way, you’ll build up your credit score from the cardholder paying off their credit on time. 

Confirm with the credit card company the account information is reported to credit bureaus for you to build credit. Some may not report authorized users to credit bureaus, meaning you won’t build credit from this method. 

The risk with being an authorized user is if the credit card holder is not paying on time and has money that needs to be owed, it will negatively affect your credit score and lower it.

Review with potential cardholders on their payment history before being an authorized user under their name. 

Loans

You shouldn’t be taking a loan out to build credit. Only take a loan out if it will help you in the long term. Examples are student loans or mortgages but not car loans.

Make sure you have a stable income to pay off the loan periodically. After paying off a loan, it can improve your credit score significantly. However, not paying a loan will lower your credit score as well.

You can apply for a credit builder loan if you need to improve your credit score significantly.

It helps people with no credit score or poor credit score. You are not receiving funds as a traditional loan works, but the loan amount will be deposited into a savings account.

Then you’ll make payments on the loan. The total loan balance will be sent to you at the end of the loan term, including the savings interest, if allowed on the loan contract.

If you are willing to set aside money that will be unavailable for months, then a credit builder loan is a great option. Understand it’s a commitment and make enough money above your needs to do this. 

Factors that Affect Your Credit Score?

Below is a break down of your FICO credit score

• Payment History (35%) – Making timely payments
• Amount Owed (30%) – How much overall credit you’re using? If you’re using almost all your credit on a credit card, you are considered a high risk to creditors, and your credit score will decrease. Spread out your credit usage on different credit cards and not only one.
• Credit History (15%) – Longer active credit accounts improve your credit score
• Type of Credits (10%) – Do you have different types of credits? Having mixed credits improves your credit score slightly. Apply for loans, mortgages, and credit cards to have different types of credits.
• New Credit (10%) – Recent credit applications. If you open multiple credit accounts in a short period, it will decrease your credit score.

Best Habits to Build a Good Credit Score?

Pay Your Bills Timely

The most important habit is to pay your bills on time. It accounts for 35% of your total credit score. Always pay your bill in full and avoid paying the minimum amount unless it is a last resort.

The minimum amount will keep your credit score in good standing but at the cost of paying more interest and charges for paying the minimum amount instead of the full balance on the credit card. 

Don’t Max out your Credit Card Limit

Avoid spending using up your credit utilization, meaning using up most of your credit balance, especially if it is close to the credit limit.

Using up most of your credit balance will negatively affect your credit score. Best to keep the credit utilization at 30% or lower to avoid lowering your credit score.

Avoid applying for New Credit Cards in a Short Time

Applying for a new credit card will lower your credit score by a few points. A hard credit check (hard credit inquiry) will incur every time you apply for a new credit card. 

It’s not a huge impact, but applying for multiple credit cards within a short time can impact you. It will affect your overall average credit history as new credit cards will lower it.

You can apply for new credit cards but space them out and not get them all at once. 

Monitor and review your credit score

Sometimes there can be errors that may occur on your credit score. It can be fraud where you didn’t make those purchases. The sooner you spot and report it to your credit card company, the quicker they can resolve it.

Closing Thoughts

You know how to start building your credit card score from scratch. All you need to begin is to sign up for a credit card and pay it off on time.

It seems simple to always pay it off before the due date, but you need to be responsible and not overspend more than you can afford.

Over time you’ll reach a good credit score to have more opportunities for loans and lower interest rates.