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How long does it take to build credit?

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Credit is increasingly important in today’s world. Today’s world is also very much all about getting there (wherever “there” may be) in a hurry.

But no one is born with a credit file. Everyone has to start somewhere. The good news is that while credit scores range from 300 to 850, no one really starts out at 300.

So if you are new to the world of credit, either because you are young or recovering from a financial setback, where do you start? And how soon can you get there?

Let’s take a look at how long it takes to build credit, whether you are working on it for the first time or not, and what a few of the best ways to build credit are.

How long does it take to build credit for the first time?

Credit can be intimidating, especially if you are just starting to build your credit from scratch. However, building a credit score can initially take anywhere from a few months to six, depending on which credit scoring model you are pulling your score from.

For example, it can take less time to establish a VantageScore, as it requires less data and a shorter time using credit to generate than it takes to generate a FICO score. VantageScore can typically produce a score within just a month or two of a consumer opening a credit account, while FICO generally requires six months of credit history.

According to FICO, you can receive a credit score after you have had a minimum of one credit account open for at least six months or more, and at least one account with activity that’s been reported to the credit agencies within the past six months. Additionally, there can’t be any indication on your credit report that someone is deceased. If you share an account with another person, you may be affected by this requirement if the other individual is reported deceased.

If you haven’t taken out any lines of credit to date, meaning you don’t have a credit card or you’ve never taken out a loan, there isn’t enough information to generate a credit score for you. Lenders and credit card issuers rely on this information to determine what kind of credit borrower you are. Without this information, you simply have a thin credit file. If you don’t use credit often and you have a credit card that is collecting dust in a drawer, this may also apply to you.

How long does it take to improve your credit score?

Financial setbacks happen, and you’re not the only one working to rebuild your credit score. You may be wondering how long it takes to get a good credit score, or perhaps even an excellent credit score, but this largely depends on how bad your credit score is in the first place.

One of the best determinants of a good credit score is how you choose to use your credit. If you are reaping the setback of a few missed payments or a high credit utilization, meaning you maxed out a credit card or two, consistent positive behavior is the best way to build and maintain good credit.

However, serious negative marks such as bankruptcy or foreclosure can linger on your credit report for nearly seven years. While this isn’t something you can overcome overnight, a collection account that is a few years old will impact you less than a newer one.

With this in mind, let’s take a look at how long it can take to recover from certain negative marks on your credit report:

Negative mark Approximate recovery time
Applying for new credit 3 months
Closing a credit account 3 months
Maxing out a credit card 3 months
Missed payments 1-2 years
Bankruptcy and foreclosure 7-10 years

Best ways to build credit

It is possible to get a loan with little or no credit history. However, be very careful of any “no credit, no problem” deals you may see. To be sure, there are lenders out there willing to take a chance on you if you have a job or some source of income. But the terms are likely to be less than ideal. In addition to high rates and other terms (like high down payments), they may not report to the credit bureaus, which will not help you in your quest to build your credit.

Building good credit is a time and patience game. However, there are better avenues to start the process that make it easier to get on the right credit foot, including the following:

1. Apply for a secured card

Secured credit cards require a deposit in exchange for a small line of credit, and they help users either new to credit or working to rebuild their credit do exactly that. Secured credit cards require you to put up a deposit, so you are basically borrowing your own money. This makes it easier for a lender to take a chance on someone with little or no credit because if you default for any reason, the bank or lender will be able to take your deposit as payment. But defaulting is never a good idea, especially when you are trying to build a credit file of your own.

2. Become an authorized user

Another great way to build credit is to be added to someone else’s credit card as an authorized user. This method is often used by parents to help their children build their own credit.

As an authorized user, you will have access to the credit card, but you will not be responsible to the lender for payment. This does not mean that you won’t owe your mom or dad if you use their credit card. But that will be between you and the card owner, not you and the creditor.

Anyone can be added to someone else’s card as an authorized user. Also, be sure you use caution and check that the card in question is in good standing so that only positive information will be added to your own file. Each credit bureau treats authorized users differently. As an authorized user, TransUnion and Equifax may report negative information about the account, while Experian does not.

3. Report your rent and utility payments

You most likely pay your rent and utilities once a month already, so you might as well use these bills to improve your credit score. If you are looking for a way to improve your credit score without relying on your credit cards for that extra boost, you can use an alternative data reporting service to report your rent and utility payments.

Check with your landlord to see if they are already reporting your payments to Experian RentBureau. If they aren’t, sign up for a rent payment service that works alongside RentBureaus so that you can have your rent payments recorded. Additionally, Experian Boost is one of the most popular alternative data services and it will help you boost your credit score by tracking your phone and utility payments.

4. Pay off debt

Paying off debt where you can is one of the best ways to rebuild your credit. Considering 30 percent of your FICO score comes from outstanding balances and another 35 percent is pulled from your payment history, working to reduce your credit card balances will positively reflect onto your credit score.

5. Request a credit limit increase

Requesting a credit limit increase may seem counterintuitive, but when you increase your available credit without adding more debt to the mix, you will see a boost in your credit score.

Consider this: 30 percent of your credit score is based on the ratio of available credit to current amounts owed, so when you max out your credit card, you are hurting your credit score. If your credit card issuer grants you a credit limit increase and you continue to make on-time payments, your credit utilization will go down, and your credit score will go up. But the key here is to not use the credit limit increase as an excuse to go on a shopping spree.

The bottom line

Building a good credit score takes time, but it will be worth it to you in the form of lower interest rates, better odds of approval for the best credit cards and more favorable terms on future loans. A better score can even mean lower insurance premiums.

No matter the method you decide is the best for your financial journey, make sure that the lender will report to the credit bureaus, preferably all three. Also, be very sure to make your payments on time, each and every time. This is the single best way to both build on and improve your score. And it is best for your overall financial health to boot.

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Part of  Using a credit card to build credit