How Long Does It Take to Build Credit?
Building credit can take time — but how much time?
- March 27, 2020
- Credit Score
- 7 min read
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Whether you have bad credit or no credit at all, you might wonder: how long does it take to build good credit? The answer is that it takes patience and discipline. Of course, there is more to this, but patience and discipline are at the core of any kind of improvement or building of credit you’re looking to accomplish. The good news is the amount of time it takes to improve your score varies and, with positive changes in your credit management habits, you could see your credit score improve in as little as a month. Read on for a deeper look into how long it takes to build credit, either from scratch or from a poor credit score.
It’s important to determine where you’re starting from when you want to improve or build your credit. Both building your credit profile from scratch or improving existing credit share basic strategies. But there are some fundamental differences between building your credit profile from nothing and raising your less-than-great credit to a better score range.
In general, it typically takes less time to build credit from scratch than it takes to improve a bad credit score. However, each person’s credit profile is unique, so such generalizations are best used as an overall guideline rather than as absolute law. Here’s a look at how long it takes to build credit from the ground up.
Read This: FICO Credit Score Ranges Explained
If you’re starting from scratch, according to Experian, you’ll have to have an open and active credit account for three to six months before a credit score can be calculated. Note the two requirements here: an open account and an active account. A third requirement is that your credit account cannot indicate that the account holder is deceased. This is more common than you might think, for instance, this can occur if you are an authorized user on the credit card account of a parent, who has has passed away. Meeting these three requirements are the first steps to starting your credit profile and raising your credit score.
One of the frustrating conundrums of building credit is that you usually need some credit history in order to get credit-based products that can help you thicken your credit profile. But since you have no credit history, lenders aren’t going to lend to such an unknown borrower. Thus, here are some of the top strategies for building your credit from scratch:
Getting a secured credit card is a great option for people with no credit history or a thin credit file. To get a secured card, you’ll put down a cash deposit with the credit card issuer, which serves as collateral and is usually equal to the card’s credit limit. Since you’ve provided such collateral, your cash deposit guarantees the credit line, thus there is essentially no risk for the lender. If you rack up credit card debt that you don’t or can’t pay, the lender simply keeps your deposit. However, if you pay all your bills on time, you’ll likely receive your deposit back. When these timely payments are reported to the credit bureaus, your credit profile will show your responsible activity and your credit score should start to improve.
Another smart move to make is to become an authorized user on a close friend’s or family member’s credit card account. With most credit card issuers, they will send the credit account history to all cardholders’ credit reports. When you’re made an authorized user, account activity also appears on your credit account, which will then establish your credit history and set you on the right track. When both you and the primary credit account holder make timely payments, this positive activity will be reported for both users. Just as it can help both users when used responsibly, irresponsible use of credit will hurt both users as well so be careful not to hurt your personal relationships in the process.
Applying for and repaying a loan can also help improve your credit scores because having more than one credit account adds to the variety of your credit profile. A great type of loan for building credit is what’s called a credit-builder loan, usually offered by credit unions. Similar to a secured credit card, with a credit-builder loan, you deposit a sum of cash, which serves as collateral, into a separate account and receive a loan that matches the deposit. You then repay the loan in installments, including interest, over a fixed period of time. You don’t actually receive the loan first, like with traditional loans. Instead, as you make repayments, these payments are reported to the credit bureaus to build out your credit profile. Once you’ve paid it off, you get the funds and your credit profile will show positive activity, reflected in your credit score.
How long it takes to build credit, once again, varies from person to person. In general, however, it typically takes less time to build out a credit profile and good credit score if you’re starting from scratch. This is due largely in part to the fact that bad credit scores are caused by a history of negative activity. Thus, the timeline can be difficult to determine for improving a bad credit score because you will have to compensate for your previous negative marks with new, consistent positive activity. Therefore, if you’ve dealt some serious damage to your credit score, it could take several years to raise it back up to good standing.
Serious negative marks on your credit score can include a range of missteps, such as a credit balance that goes to collections, foreclosure, repossession or bankruptcy, which can stay on your record for about seven years. Bear in mind, however, that if you allow these negative marks to remain unresolved for a long time, they will have a greater impact on your credit score. If you have a payment that goes to collections that’s only a few months old, that is certainly better than a collections account that’s been on the books for several years.
Fortunately, if your score is low, each positive change you make will likely have a substantial impact. Plus, various negative dings to your credit score affect your recovery timeline differently. For example, fixing mistakes or disputing fraudulent activity will usually be updated on your credit report within about one to three months. To recover from late payments, however, usually the timeline is much longer than a couple of months. Since payment history is the most significant factor for both FICO and VantageScore credit score models, it can take anywhere from 18 to 24 months for your score to bounce back after you’ve taken the proper action of paying off your debts in a timely fashion and, ideally, in full.
Building your credit profile from scratch can take a fairly short amount of time, even as little as a month once you’ve established some credit accounts and activity. On the other hand, if you’re trying to improve your bad credit quickly, it will very likely take you longer than a month. As mentioned, the keys to winning the long-term credit score game is patience and discipline. There are no simple cure-alls for raising your credit fast, but there are some basic tips and strategies for improving your credit as quickly as possible. Just remember that, even though you may reach good credit score territory, it’s much easier for your credit score to drop once you’ve reached a stable score, so it’s essential to maintain responsible credit habits. Here’s a look at some ways to improve your credit score.
It is not uncommon for credit reports to contain errors, including incorrect credit limits, wrong Social Security numbers, missing accounts or additional accounts that aren’t yours. All of these errors can pull your credit score down. Fortunately, credit bureaus are legally required to correct errors, so disputing mistakes is a good place to start with improving your credit score.
Payment history is the most significant factor in determining your FICO credit score. Thus, missing payments and not making them on time is one of the quickest pays to damage your credit. On the flip side, by making every payment in full and on time, you can quickly make a positive impact on your credit score. Plus, over time, your reported late payments will fade in terms of their impact on your credit score.
Another major factor that goes into calculating your credit score is your credit utilization ratio. This ratio is the amount of debt you’ve accumulated divided by your total credit limit. For example, if you have a credit limit of $5,000 and you have credit balances equal to $2,500, then your credit utilization ratio is 50%. Although you’re not using all of your available credit, the ideal ratio lenders look for is 30% or less in credit utilization. By paying down your balances until your utilization is below 30% and maintaining this or a lower ratio, your credit activity will be reported positively and help improve your credit score. If you can, pay off your credit card bill in full every month for a positive impact on both your credit score and your wallet.
The main point to take away from all this is that building credit and improve credit is all a matter of discipline and patience. It may sound boring, but by practicing and maintaining responsible credit habits combined with focusing on the long-term, you can get well on your way to creating a great credit profile. If you’re wondering how long does it take to build credit, the general answer is that it is shorter than the time it takes to improve your score from a bad credit score. But more importantly, whether you’re trying to raise your existing score or just starting out, you have plenty of strategies to improve your credit history and establish sound financial footing.
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