|All content presented here and elsewhere is solely intended for informational purposes only. The reader is required to seek professional counsel before beginning any legal or financial endeavor.|
Building good credit rating is one of those things that adults need to do if they want the ability to borrow money via a personal loan, mortgage, or otherwise. And, the better your credit score, the better interest rates and loan terms that you can get. But building a credit rating and good credit is something that takes time to happen. It takes time, perseverance, and a sense of fiscal responsibility.
- It takes about six months for the credit bureaus to determine your initial credit score
- Building a good credit history can take seven to ten years.
- Paying your bills on time, watching your balance to credit limit ratio, and being mindful when applying for new credit, are the most critical factors in building a good credit score and a credit history to be proud of.
- It typically takes less time to establish good credit from scratch than it does to repair poor credit.
- Credit-building products can help you work toward a good credit score.
How Long Can It Take To Build Good Credit and Why?
Building good credit doesn’t happen overnight. It takes time, commitment, and discipline. If you don’t have a credit history now, the sooner you start, the quicker you’ll be on a path to better financial stability. To start building credit, you’ll need to open new credit accounts. Getting your first credit card is a good start.
But building that good credit score will take longer than a few days or weeks. It can take seven to ten years to build good credit. It takes so long because the credit bureaus need to see a history of good financial behavior, such as paying your bills on time, being responsible with your spending, and more. It can set you back if you miss a payment, even once or twice. And if you spend too much of your credit limit, that can hurt you too.
How Is Your Credit Score Calculated?
To generate a credit score, you must build your credit history for the three primary credit bureaus (Equifax, Experian, and TransUnion). It can take about six months to get a credit score with at least one credit account. But more specifically, your credit score is calculated via two major credit-scoring models.
FICO credit scores
Your FICO credit scores is calculated based on the following factors and weights:
- Payment history: 35%
- Amount owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
As you can see, the most weight is given to your payment history. So, you must make your payments on time. Be sure to pay at least the minimum due so that you are not subject to late fees or other derogatory hits to your credit (failure to make your minimum monthly payment counts as a missed payment).
Next up is credit utilization. Though creditors are happy to extend a credit line to you, they get nervous when you spend too much of it. The belief is that the higher the balance, the harder it is to make your minimum monthly payment and the bigger the credit risk you become. As a rule of thumb, keep your balances under 30% of your credit limit. This ratio of debt to your credit limit is referred to as utilization.
The VantageScore was created in partnership with Equifax, Experian, and TransUnion to offer lenders a competitive scoring mechanism to what FICO offers. And the VantageScore 4.0 is calculated similarly but with less specific weights.
- Payment history: Extremely influential
- Credit utilization: Highly influential
- Credit age and mix: Highly influential
- Amount owed: Moderately influential
- Recent credit behavior: Less influential
- Available credit: Less influential
In general, it may take less time to develop a VantageScore than a FICO score. But, both scores are important as 90% of top lenders look to borrowers’ FICO scores when making lending decisions.
What Is a Good Credit Score?
Both FICO and the Vantage Score use what they call credit rankings. Credit rankings, also called credit ratings, evaluate the credit risk you might provide to a lender and your ability to pay that debt back.
The FICO score range is as follows.
- Poor = <580
- Fair = 580 - 669
- Good = 670 - 739
- Very Good = 740 - 799
- Excellent = 800+
The VantageScore 3.0 ranges are from 300 to 850, just like the FICO score range. However, their ranges are a bit different. The VantageScore credit ranges are as follows:
- Very Poor = 300 - 499
- Poor = 500 - 600
- Fair = 601 - 660
- Good = 661 - 780
- Excellent = 781 to 850
But the VantageScore also looks at your credit ranking in another way; subprime, nonprime, and prime. You have likely heard newscasters referencing these terms regarding the economy, the stock market, and more. In the world of credit, prime generally refers to high-quality lending. A prime loan is considered to be low risk. Conversely, subprime refers to less-than-good (or prime) credit. Subprime borrowers tend to have fewer loan options and receive less favorable rates and terms than prime borrowers. And nonprime refers to anyone who is not prime. These consumers might still need to get a long credit history.
- Subprime: 600 or below
- Non Prime: 601 to 660
- Prime: 661 to 850
How Can You Build Your Credit from Scratch?
Building your credit from scratch is not all that difficult; it just takes time. Some of the most tried-and-true methods include:
- Applying for a secured credit card - secured credit cards look, act, and feel just like traditional credit cards. But you will pay a cash deposit upfront to guarantee your credit line. While your credit history can be used to determine your eligibility for the secured card, a security deposit is typically required.
- Becoming an authorized user on another person’s credit card can help you build your credit and establish a history. However, if the primary cardholder (or you) fails to make a payment on time or spend over the 30% ratio, it can look bad for both of you.
- Applying for a credit-builder loan - A credit-builder loan is not the same as a traditional loan. With a traditional loan, you usually get the money upfront and pay it back monthly. A credit-builder loan, however, requires you to make fixed payments to the lender first. And you can access your loan amount at the end of the loan term.
Whichever option you choose, be sure to do the following:
- Make your payments on time - all the time
- Keep your spending utilization at 30% or less of the credit limit
- Don’t apply for too much credit all at once, and only apply for what you need
How Can You Improve Your Credit?
If you need to repair damaged credit or just want to improve your credit score rating, there are some things you can do.
- Check your credit reports to ensure the information contained is accurate. You can access your credit report for free once a year via annualcreditreport.com. If your report contains any inaccuracies, follow the instructions on the credit report. You will likely need to file a credit report dispute.
- Pay down any overutilized credit cards.
- Continue to pay your bills on time (and pay over the minimum amount due whenever possible). Autopay is a great way to ensure you never miss a payment. Check to see if your credit card has that option.
While focusing on the above, you can also explore ways to build your credit. The strategies to build and improve your credit score are nearly identical to what you need to do to start building a credit history in the first place.
- Become an authorized user on another trusted person’s account
- Sign up and get approved for a secured credit card
- Apply for a loan with a co-signer - just don’t forget to make payments on time every month
How Can You Keep Track of Your Credit Score?
Keeping track of your credit score is an integral step in maintaining and protecting your credit. And accessing your credit score is easier today than it has ever been. Access your credit score in one of these ways:
- Check to see if your credit card lender offers access to your free credit score - if so, you may be able to access your credit score as often as you want. This is a great way to know that everything is under control.
- Try a free credit score service. These services might not offer you daily access to your score, but you can likely access your score once a month to ensure everything is up and up.
- Purchase your score from one of the leading credit bureaus. Equifax, Experian, and TransUnion all offer credit scoring programs designed to give you visibility to your score and help with strategies to improve it.
- Access your free credit report once per year via annualcreditreport.com. When you check your credit report, watch closely for any errors. File a dispute if you see something incorrect.
Still wondering how long does it take to build good credit. The answer lies in establishing healthy financial habits to get good credit. But remember, you won’t establish a good credit score overnight. You’ll start building a credit history once you get approved for a credit line or add to someone else’s account. Expect to see your credit score about six months in, and understand that it takes seven to ten years to build a suitable credit history. Don’t forget that you can repair a poor credit score by following the recommendations in this article. Just be sure to give it time.