How Long Does it Take to Build Credit?

If you have a trusted and financially responsible family member or friend, ask them to add you to their credit card as an authorized user. This allows you to take advantage of their good habits while you develop a credit history. However, before you do this, make sure you have the means to fulfill your end of the financial arrangement.

Apply for a credit builder loan

Another great way to help you build your credit fast is to apply for a credit builder loan. A credit builder loan lets you take on a small debt and demonstrate that you're a reliable borrower. You can show you are a good borrower by making regular, on-time payments towards your loan. At the same time, this activity helps you develop a positive credit history. 

Get a secured credit card

Getting a secured credit card can help you build good financial habits such as managing your utilization, paying your bills on time, and developing a good credit history. Secured cards work just like traditional credit cards, except things are slightly different on the back end. With a secured credit card, you pay a cash deposit upfront to guarantee your credit line. As you make your payments and demonstrate good behaviors, you can work towards that secured credit card becoming unsecured. This process takes about six to 18 months.

Get credit for utility and streaming services payments

Many people have monthly expenses and obligations that don’t help build their credit. As an example, if you are one of the 230.7 million Netflix subscribers, wouldn’t you want your good payment history to Netflix to help you build your credit? Of course, you would, but it won’t happen independently. If you want your mobile phone, electrical, gas bill, Netflix, HBO, Hulu, Disney+, and Starz payments to count towards your credit history, sign up for a service such as Experian Boost that lets you get credit for paying monthly utility, cell phone, and streaming service bills on time.

Make your payments on time every month

You may think we sound like a broken record, especially if you have read some of our other articles. The most important thing you can do to improve your credit (and build it) is to pay your bills on time every month. So whether you are paying on a personal loan for fair credit, have a secured credit card (or a traditional credit card), have an automobile loan, etc., you must pay your bills on time every month.

Pay attention to your credit card utilization

Some borrowers mistakenly believe that if they are approved for a credit card for $5,000, they can spend to the credit limit as long as they make their minimum monthly payments. But while that responsible payment history can help your score by as much as 35%, your credit card utilization is almost as important. Credit utilization refers to the amount you owe on a credit card compared to your credit limit. Creditors want a credit balance to credit limit ratio of 30% or below.

This said, the combination of keeping your spending well below your credit limit – using less than 10% of your available credit while maintaining other good credit habits like paying on time could benefit your FICO score.

Take control of your debt 

Have you ever opened a new credit card, only to max it out in just a few months? That high credit limit can be lucrative, especially if you want new tools for the garage, are planning a wedding, or want that new part of Loubitons. And if this has happened to you, don’t fret, as you are not alone. According to Experian, consumer debt is on the rise. And according to CNBC, the average credit card balance among Americans is $5,805. If you take that balance and pay just the minimum monthly payment, it could take 17 years to pay it off, costing you over $8,000 in interest (based on a 20% interest rate).

The statistics are alarming

Those statistics can be alarming, but they highlight many Americans' financial situation, and many are struggling to find their way out. If your balances have gotten too high and are out of hand, now is the time to take control of your debt.

Introducing the snowball and avalanche approach to paying off your debt

When paying off your debt quickly, there are two primary strategies to consider. The snowball method recommends you pay off the smallest of your loans as quickly as possible. Then, move on to the next balance and do the same. The avalanche approach, on the other hand, focuses on paying the loan with the highest interest rate first. Both debt-payment methods are highly effective and can help you pay off debt and save on interest. You may also wish to consider debt repayment strategies, such as a debt consolidation loan, balance transfer credit cards, or a debt management plan through a credit counselor.

Seek credit counseling if you need it

Sometimes, even the best of us may need assistance getting in control of our finances. If you feel overwhelmed and don’t see light at the end of the tunnel, it might be time to seek help from a credit counselor. Credit counseling helps borrowers learn more about consumer credit, money management, debt management, and budgeting. Contact the National Foundation for Credit Counseling or The Federal Trade Commission to find a reputable credit counselor.

What to Avoid When You Want to Build Your Credit

We’ve provided several recommendations on how to build your credit. But there are also things you should not do when you are trying to build or improve that credit score.

• Failing to establish credit in the first place - Review our list of recommendations to find ways to build credit, a credit builder loan, a secured credit card, or being added as an authorized user to someone else’s credit card.
• Making late payments - This will impact your credit score by 35%.
• Using too much credit - Keep your credit card utilization under 30%, and don’t take out more credit than you can manage.
• Applying for too much credit all at once - If you already have a credit score, every time to apply for a new loan, such as a personal loan for poor credit, it results in a hard credit inquiry. This can ding your credit report five points each time and sits on your credit report for up to two years.
• Using only credit cards - Though credit cards are a great way to help you build your credit, your credit mix is also important and accounts for 10% of your credit score. Shoot for a healthy credit mix, including a mortgage or lease, automobile loan, student loan, and one or two credit cards.
• Canceling old credit card accounts - It might feel like the right thing to do to close out an old account once it is paid off and if you no longer plan to use it. But, the bureaus look at your utilization as a whole, which means they look at the total credit limit you have amongst all of your credit cards. And likewise, they look at your total credit card balances. So, when you close out a credit card, it can quickly damage your utilization.

How Is Your Credit Score Determined?

As we indicated previously, your FICO credit score is calculated using the following criteria:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10% 

Though we typically provide recommendations based on the FICO score model, it is important also to understand the VantageScore which is used by many lenders, landlords, and financial institutions to determine your creditworthiness. The three credit bureaus (Experian, Equifax, and TransUnion) developed a new algorithm to produce the VantageScore in 2006, providing competition against the FICO score.

Your VantageScore utilizes a very similar approach.

• Payment history: 40%
• Depth of credit: 21%
• Credit utilization: 20%
• Balances: 11%
• Recent credit: 5%
• Available credit: 3% 

Is it Possible Not to Have a Credit Score?

First, you should know that having a zero score is impossible, as the scoring model falls between 300 and 850. However, it is possible to have no score, meaning no number is tied to your credit profile. You may not appear in the FICO or VantageScore scoring models if you've never had a credit card or loan or haven't used credit in a long time.

Here are the five reasons why you may not have a credit score.

• You have never used traditional credit accounts
• You have not used credit in more than 24 months
• You're young (under 18) or have no experience with credit
• You're a recent immigrant (because you have never before applied for or used credit in the U.S.)
• You've only recently applied for credit for the first time (it takes about six months to establish a credit score)

How To Maintain a Good Credit Score

The tips to maintain a good credit score conveniently coincide with some of the best ways to improve your credit. After all, obtaining a good credit score can help you be eligible for personal loans for good credit, which come with more lucrative interest rates than loans for poor or fair credit. Here is what you need to do.

• Pay your bills on time, all the time
• Keep your credit card utilization under 30%
• Be patient while building your credit history - it takes time
• Check your credit report annually at annualcreditreport.com and dispute any errors that you come across
• Build and establish credit in the first place by trying one or more of the recommendations provided at the beginning of this article 
• Remember that building good credit is a lifelong journey that requires patience and perseverance

Final Word

By now you should know the answer to the question, how long does it take to build good credit. The answer simply varies based on your unique situation and the good financial habits that you follow. The best way to build your credit is to try one of the recommendations we suggested, such as a credit builder loan, a secured credit card, or being added to a trust family member’s credit card as an authorized user. And once you have started to develop that credit history, be sure to pay your bills on time and pay attention to how much you spend.

• How do I dispute an error on my credit report? | Consumer Financial Protection Bureau
• Research Looks at How Mortgage Delinquencies Affect Scores
• What is a credit score? | Consumer Financial Protection Bureau
• 7 Common Credit Mistakes and How to Avoid Them
• Why Don’t I Have a Credit Score?
• How are Credit Scores Calculated?