How Long Does It Take to Build Credit?


Credit is a cornerstone of modern personal finance, shaping everything from loan approvals to apartment rentals. You need a strong credit history to secure the best interest rates, credit cards with perks, and even a better home. But you may wonder: “How long does it take to build credit?”

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The path to establishing and improving one’s credit can be winding and, at times, challenging. Whether you’re just starting out on your credit journey or looking to enhance an already existing credit file, understanding the roadmap is crucial. This article unravels the complexities of credit and offers a comprehensive guide to building and maintaining a robust credit profile.

Understanding the Components of Your Credit Score

A credit score is a number that reflects how well you handle your finances. Let’s break down what makes up this score:

  • Payment history: This looks at whether you pay your bills on time. If you consistently pay on time, it helps your score. If you often pay late or miss payments, it lowers your score.
  • Credit utilization: Credit utilization measures how much of your available credit you’re using. For example, if you have a credit card with a $1,000 limit, and you’ve spent $300, you’re using 30% of your available credit. Lower percentages are better for your score.
  • Length of credit history: How long have you had credit accounts open? Older accounts can be better for your score because they show you have a long history of handling credit.
  • Credit mix: This considers the different types of credit you have, like credit cards, personal loans, or auto loans. Having a mix can be good because it shows lenders you can handle different kinds of credit.
  • New credit: Opening many new accounts in a short time can hurt your credit score because it might look like you’re struggling financially. Plus, a new card brings risks of missed payments.

Starting from Scratch: Establishing Initial Credit

Building credit, especially without a prior credit history, can feel like an uphill battle. How do you establish a credit history when most credit accounts require an existing credit report for approval? Fortunately, there are tools designed to aid those in this exact predicament.

Secured Credit Cards

Unlike traditional credit cards, a secured card requires you to make a security deposit, acting as collateral. This deposit typically determines your credit limit. For instance, if you deposit $500, your credit limit will generally be $500.

One of the advantages of a secured card is that it operates like any other credit card. You’ll make purchases, receive a monthly statement, and be required to make payments by the due date.

However, there’s a significant difference when it comes to defaulting on payments. If you fail to pay, the card issuer has the right to take the owed amount from your deposited funds.

Over time, with responsible usage and consistent on-time payments, many issuers will transition you to an unsecured card and return your security deposit.

Credit Builder Loans

Another tool at your disposal is the credit builder loan. Offered by many credit unions and some banks, this isn’t a traditional loan. Instead of receiving the borrowed amount upfront, the money is held in a bank account by the lender. You’ll then make monthly payments, which include interest, until the loan is paid off.

The distinct advantage of this loan type is its credit-building aspect. Every on-time payment is reported to the three major credit bureaus, helping establish a budding credit history. Once the loan term is complete, the initially borrowed amount is returned to you, often with a slight deduction for interest.

The Typical Timeline for Building Credit

Building a strong credit profile isn’t an overnight endeavor. It requires patience, diligence, and an understanding of how credit works.

The Birth of Your Credit Score

After diving into the credit world by opening a new credit account, whether it be a credit card or a personal loan, the countdown begins. It typically takes about 6 months of credit activity for your first credit score to emerge. This is because many credit scoring models need at least six months of credit history to generate a score.

The Importance of On-Time Payments

When it comes to credit, you need to pay your bills on time. Payment history is one of the most significant factors in how credit scores are calculated. Demonstrating consistent and timely payments reinforces responsible credit habits and can pave the way towards a good credit score. It sends a clear signal to lenders and credit card companies about your reliability and capability to manage debt.

On the flip side, late payments, especially if they escalate to missed payments, can have a detrimental effect on your score. A single late payment can knock off several points, and these blemishes can linger on your credit report for up to seven years.

Milestones in the Credit Building Journey

Credit building is a marathon, not a sprint. It’s essential to understand and anticipate the milestones along the journey so you can prepare for the next phase.

6 Months: First Signs of Credit Life

After half a year of consistent loan payments or credit card usage, you cross your first significant milestone: becoming eligible for a FICO score. It’s the initial reflection of your credit habits. This score will be the baseline upon which all future credit activity will either improve or deteriorate.

12–24 Months: Transitioning Credit Status

This period is transformative. With one to two years of maintaining good credit habits – like making on-time payments, and avoiding maxing out your credit cards – your credit score can transition from the ‘poor’ category to ‘fair.’ It signals to lenders that you are learning and adopting responsible credit behaviors.

24–48 Months: The Beginning of Good Credit

By the time you hit the two-year mark and continue towards the fourth year, with diligent on-time payments and a low credit utilization ratio, you can find yourself in the “good” credit territory. This period often sees individuals qualify for better interest rates and more favorable loan terms.

5+ Years: The Pinnacle of Credit Excellence

The half-decade mark and beyond is where the fruit of your labor truly begins to shine. With continued responsible credit habits, not only can you maintain a “good” credit score, but you can also ascend to the “excellent” credit status. This tier is reserved for those who have consistently demonstrated impeccable credit management over the years.

Fast-tracking Credit Building: Dos and Don’ts

While the journey of credit building is traditionally viewed as a long-term process, there are strategies and shortcuts that can help accelerate your progress. However, with every shortcut comes the potential for pitfalls, so it’s crucial to tread wisely.

The Power of Being an Authorized User

One of the quickest ways to benefit from another person’s good credit habits is by becoming an authorized user on their credit card. This doesn’t mean you’re co-signing or responsible for their debt. Instead, you benefit from their credit card account’s history as if it were your own. But a word of caution: Ensure that the primary cardholder has a history of timely payments and that the credit card issuer reports authorized user activities to the credit bureaus. Otherwise, this strategy could backfire.

The Balance Act: Paying Off in Full vs. Credit Utilization

A critical element in fast-tracking your credit building is understanding the balance between paying off your credit card in full and managing your credit utilization. Keeping your credit utilization – the ratio of your credit card balance to its limit – low is essential. However, simultaneously, it’s equally vital to pay off your balances in full to avoid unnecessary interest.

Vigilance with Credit Reports and New Accounts

A proactive approach to your credit involves regularly checking your credit reports for errors or unauthorized activities. These could silently drag down your score if left unaddressed.

While it might be tempting to open new credit accounts to boost your available credit, exercise caution. Every new account leads to a credit inquiry, and multiple inquiries in a short span can temporarily dent your credit score. It’s always best to pace yourself and open new accounts only when necessary.

Potential Roadblocks and Setbacks

The road to building credit is not without its obstacles. Even the most diligent individuals can encounter unexpected hurdles that affect their credit health.

Derogatory Marks: The Long-lasting Blemishes

Derogatory marks, such as bankruptcies, charge-offs, or late payments, serve as red flags on your credit report. Their presence indicates past financial difficulties or mismanagement:

  • Bankruptcies: Among the most damaging of credit blemishes, a bankruptcy can remain on your credit report for 7 to 10 years, depending on the type. It signals significant financial distress, making future lenders wary.
  • Late and Missed Payments: Payments that are 30 days or more past due can be reported to the credit bureaus. The later the payment, the more harm it can cause to your credit score. These marks can stay on your report for up to seven years.
  • Collections: Unsettled debts can be sold to collection agencies, which can then report the owed amount to the credit bureaus. A collection can negatively affect your credit score and remain on your report for seven years.

Being aware of these potential setbacks and actively working to avoid or address them can make the difference between a stellar credit profile and one that raises lenders’ eyebrows.

Maintaining and Protecting Your Established Credit

Once you’ve built a solid credit foundation, the challenge shifts from establishing credit to preserving and enhancing it. Consistency, awareness, and diversification become the new mantras.

The Importance of Timely Payments

Making on-time payments form the bedrock of a stellar credit profile. Whether it’s a credit card bill, a mortgage payment, or an auto loan installment, punctuality reinforces trustworthiness to lenders.

Guarding Against Invisible Threats

In an age of digital transactions and online banking, the threat of identity theft looms large. Regularly monitoring your credit reports can help spot unauthorized accounts or discrepancies. Using secure passwords, being wary of suspicious emails or calls, and utilizing identity theft protection services are proactive steps in safeguarding your credit health.

An Explanation of Credit Scores

Understanding the mechanics behind how credit scores are calculated can offer clarity on maintaining a high score. Familiarizing oneself with the weightage of factors like payment history, credit utilization, credit age, and credit mix can guide informed financial decisions.

The Power of Diversified Credit

A well-rounded credit profile isn’t just about credit cards. Having a mix of revolving credit (like credit cards) and installment loans (like auto loans or mortgages) showcases your ability to manage different types of credit responsibly. Lenders often view this diversity favorably, as it demonstrates financial maturity and versatility.

By continuously educating yourself, staying vigilant against potential threats, and diversifying credit types, one can maintain and continue to elevate their credit stature.

Bottom Line

The journey to credit excellence is akin to a marathon, where patience meets strategy. Every individual has a distinct credit story, filled with unique challenges and celebratory milestones. This journey, though challenging, is entirely under your control.

Starting with foundational tools like a secured credit card or enhancing your progress as an authorized user influences your trajectory. The key is to understand and manage the multifaceted elements that mold your credit score.

Armed with knowledge and consistency, you can pave the way for a plethora of financial opportunities. Stay patient, remain diligent, and the rewards of a robust credit profile will be yours to reap.

Frequently Asked Questions

How often is my credit score updated?

Credit scores can be updated as often as once a month or whenever new information is added to your credit report. It’s a good practice to check your score and at least one of your three credit reports from either TransUnion, Experian, or Equifax, at least once a year.

Does checking my own credit score lower it?

No, checking your own credit score is considered a “soft inquiry” and doesn’t impact your score. However, when a lender checks your score, it’s a “hard inquiry” and might slightly reduce your score for a short period.

What is considered a “good” credit score?

While different models have various ranges, typically, a credit score of 700 and above is considered good for most models, with 750 and above being very good to excellent.

How can I correct errors on my credit report?

If you find errors on your credit report, you should contact the credit bureau that produced the report and the provider that furnished the information. They are required by law to investigate and correct valid mistakes.

Do all lenders use the same credit scoring model?

No, lenders might use different models or versions of a model. That’s why your score can vary slightly from one lender to another.

How long does negative information, like a late payment, stay on my credit report?

Most negative information, like late payments or defaults, can stay on your credit report for up to seven years. Bankruptcies can remain for up to 10 years.

If I co-sign a loan, does it affect my credit score?

Yes, co-signing a loan means you’re equally responsible for the debt. If the primary borrower misses payments, it can negatively impact your credit score.

Why do I have different credit scores from different credit bureaus?

Each of the major credit bureaus may have slightly different information about your credit history, leading to minor variations in your scores. Plus, each credit scoring model varies slightly in its scale and how it assesses your credit. Your Vantage score might be higher or lower than your FICO score.

Will closing old or unused credit accounts help my credit score?

Not necessarily. Closing old accounts can reduce the total available credit, potentially raising your credit utilization rate, which might lower your score. It can also affect the length of your credit history.

Can I rebuild my credit score if it’s low?

Absolutely. It might take time, but with consistent efforts like paying bills on time, reducing outstanding debt, and avoiding new debt, you can improve your credit score.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.