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How Long Does It Take To Build Credit?
Having a good credit score can open a lot of doors in life, from getting better insurance rates to buying your dream home. Better credit also makes it easier to get a loan, or even a lower-interest mortgage. However, credit can be confusing and scary, and the topic begs a lot of questions. For example, how long does it take to build credit? How do I improve my credit? How long does it take to get a credit score?
The short answer to all of these questions is that it depends. Let’s talk about how you can build credit quickly in order to set yourself up for financial success.
How quickly can I build credit?
It’ll take about six months of credit activity in order for credit bureaus to translate your history into a FICO credit score, which are used by the vast majority of lenders. However, it’ll only take about a month or two to create a VantageScore.
FICO vs. VantageScore
Developed in 2006, VantageScores are much less established than FICO credit scores, which have been around since 1989. However, they can still come in handy. According to an Oliver Wyman study, about 10.5 billion VantageScores were used by over 2,800 unique users between July 2017 and June 2018. VantageScore users included a variety of organizations, from auto lenders to credit card issuers.
While your FICO score will be checked more often, VantageScore’s model is based on most of the same criteria. Therefore, it can be a good metric to determine your credit health when starting off.
How can I improve my credit score?
In order to raise your credit score, you’ll want to understand how it’s calculated. FICO scores are calculated using data from your credit report. All of your credit information can be divided into five major categories. Each category’s weight may vary by individual, but the average customer’s score is based on:
- 35% payment history: Have you paid off your bills and credit cards on time?
- 30% amounts owed: How much available credit are you using? Many recommend limiting your usage to under 30% of available credit. In other words, if you have a $2,000 credit limit, try to keep your balance under $600 at all times.
- 10% new credit: Did you open any credit accounts recently? Opening a new line of credit requires the issuer to initiate a hard inquiry, which can hurt your score for up to a year in most cases.
- 15% length of credit history: How long have you been building credit?
- 10% credit mix: Which forms of credit do you use– credit cards, retail accounts, installment loans, finance company accounts or mortgage loans?
As you can see, the most important contributors to your credit score are typically payment history and amounts owed. Therefore, your first priority in building credit should be paying bills on time and keeping your balance below 30%. While you’ll naturally start out a little bit lower as a new user, it’s nothing to worry about. Just be patient and stay on top of your finances, and your credit will build steadily.
What’s a good credit score?
If you’ve never had a credit score before, it’s hard to tell what you’re even aiming for. FICO credit scores lie between 300 and 850.
- Below 600: Poor credit. You’ll probably have trouble getting a loan at this level.
- 600-699: Fair credit, around the national average. While it still may be hard to get a loan with a score like this, it’s definitely possible with some lenders.
- 700-799: Good to very good credit. You’ll be able to get loans from almost anywhere.
- 800-850: Excellent credit. You’ll be able to get loans at the best rates from most lenders.
How can I check my credit score?
There are a number of ways to check your credit for free. By federal law, you are entitled a free copy of your credit report every 12 months. Companies like Credit Karma offer free credit reports. In addition, they offer monitoring and even allow you to set up an alert system to stay in the know.
What if I can’t get a credit card in the first place?
Lack of credit history can be a roadblock to getting your first credit card. If that’s the case for you, you’ll want to consider applying for a student credit card. These cards are typically easier to get, as being a college student gives you a trustworthiness boost.
However, if you don’t want to go all-in on a student card, there’s a few other options for you.
Become an authorized user on another account
If you don’t want to get your own credit card just yet, you can also join in on someone else’s. Even if you don’t use the account at all, you can benefit from their healthy habits. By “someone else,” we mostly mean your parent or another trusted family member. You’ll want to make sure that they’re paying their bills on time and using the card responsibly, or else it might actually leave you worse off.
If you’re interested in starting out your credit activity by becoming an authorized user, you’ll want to ask the primary account holder to contact their credit card company. They can figure out the process of adding you to the account. Once you’re an authorized user, you’ll want to keep in close communication with the primary holder. You’ll have to share the credit limit and confirm your purchases in case of fraud.
Apply for a secured credit card
Secured cards require a refundable security deposit before they’ll issue a card. That way, they don’t have to take on as much risk by accepting someone with poor or limited credit. For that reason, secured credit cards are much easier to get approved for in the first place. Then, as you continue making on-time payments, you can raise your credit score and eventually upgrade to an unsecured credit card.
Building credit can be a stressful and confusing process. However, it’s an important part of many areas of life, from jobs to car insurance. Hopefully, you feel a little more informed about how to start your journey to excellent credit!