How Long Does It Take To Build Credit?

Summary: How long it takes to build credit depends on a variety of factors. Your best bet is to take a long view, follow these recommendations and be patient.

how-long-build-credit-tiny

By Ben Luthi

Whether you’re building credit for the first time or trying to rebuild after past credit mistakes, it’s unlikely you’re going to see overnight results.

That can be frustrating, especially if you’re trying to decide whether it’s worth the effort in the first place. Unfortunately, there’s no surefire way to find out exactly how long it’s going to take you to establish or improve your credit score.

There are, however, some guidelines you can use and habits to develop as you work toward your goal. In this article, we’ll walk through:

  • How long it takes to build credit, period
  • Credit-building guidelines to consider
  • How long it takes to build credit for a mortgage
  • Why good credit is hard to build and easy to destroy
  • 3 habits for credit success

But first, let’s talk about how long it takes to build credit. The short answer? It’s impossible to say exactly. Here’s why.

Why it’s impossible to say how long it takes to build credit

Building credit is a lot like losing weight. There’s a lot more to it than just flipping a switch or pressing a button. Several factors go into your determining your credit score, and FICO and the other credit scoring companies don’t share the entirety of their complex calculations with the general public.

Because of that, it’s possible to work on improving your credit score for months without seeing a large uptick in your credit score.

At the same time, it’s also possible to see your credit score improve by leaps and bounds over a short period. It all depends on the various factors the credit scoring companies are using to calculate it, and your personal credit situation.

As a result, focusing on the number is generally the wrong way to measure whether you’re going in the right direction. Instead, it’s essential to focus on developing the right credit habits and staying focused on your goal.

Guidelines for building credit

While it’s futile to try to determine exactly how long it will take you to improve your credit score, there are a few general rules of thumb that can give you an idea.

how long build credit, credit score

The six-month rule

If you've never used credit before or haven’t had any lines of credit in the past six months, it will take at least six months before FICO will calculate a credit score for you. This means that it will take at least that long to get your three-digit FICO score.

Once you get there, though, you could still have what’s called a thin credit file, and it can still take a while to get your credit score to where you want it to be. A thin credit file just means that while you have some credit history, it's too limited for lenders to make decisions with confidence.

VantageScore doesn’t have the six-month rule, which means that you could have a VantageScore credit score as soon as your new credit account starts reporting.

Unfortunately, though, lenders typically rely on the FICO credit score when underwriting credit applications. So, while it’s nice to see a score with VantageScore, lenders who only use FICO still won’t see a score for you when you apply for a loan or credit card until you’ve reached the six-month mark.

Rebuilding can take longer than building from scratch

Building credit from scratch likely won’t take as long as trying to rebuild your credit after a bankruptcy or foreclosure.

That’s because those major negative items can remain on your credit report for seven to 10 years. They won’t necessarily affect your credit score heavily for that long — new positive information generally outweighs old negative information over time.

But it will still usually take more work to diminish past mistakes than it will to build a credit history from the ground up.

Remember, however, that rebuilding your credit is completely different from repairing your credit. Credit rebuilding does not go back over your credit report to fix any errors or mistakes, or dispute any information with creditors. Instead, rebuilding your credit is all about adding new, positive information to your credit report, which you do through managing your credit accounts responsibly.

If you’ve made a small mistake, however, and have an otherwise spotless credit history, it likely won’t take you very long to restore your credit score to its former glory.

Credit utilization is usually a quick fix

If your credit utilization ratio gets too high, it could drop your credit score significantly. But since credit card issuers report account activity once a month, paying down a balance and keeping it low before the next reporting date could cause your credit score to bounce back accordingly.

More debt may not always be the answer

Having multiple credit cards or a credit card and multiple loans — such as a car loan, student loan, and mortgage — could help you build credit faster. That’s simply because there’s more information for the credit scoring companies to use.

But going into debt just to build your credit isn’t always in your best interest, especially if it’s high-interest debt. Instead of helping you build credit, falling behind on payments could make things worse.

That said, using a secured credit card and paying off the balance in full each month, plus getting a credit builder loan with a reasonable interest rate could help you build credit more quickly because it shows you can responsibly manage different types of debt.

It can depend on when lenders report

In general, most lenders report your account activity to the credit bureaus once a month. But it’s possible to get a lender that doesn’t report as often.

As such, if building credit is your top priority in opening a credit account, check with the lender first to make sure that it reports once a month. Otherwise, it could take longer for your credit score to update.

How long does it take to build enough credit for a mortgage?

how long to build credit, mortgage (1)

Depending on the lender, to qualify for a conventional mortgage, you need a credit score in the 600s or higher, a stable income and a debt-to-income ratio of 45% or less.

According to Melinda Sineriz at Realtor.com:

“You should know that while a ‘fair’ score may get you a mortgage, it won’t qualify you for the best mortgage – in terms of interest rates and other deals. To get better mortgage rates, you will need a good score (700-750) or an excellent score (760 or higher). Unfortunately, achieving those scores will take (you guessed it) more time.”

While some programs exist to help people with poor or no credit gain access to housing, to gain access to the best interest rates and terms available, you will need a much higher credit score.

With a mortgage loan, the rate difference may not seem wide between different credit score ranges. Your interest rate could be 6% instead of 4%, for example. But over the course of 30 years, it could cost you tens of thousands of dollars if you can’t manage to refinance at a lower rate in the future.

Here’s an example of just how much bad credit could cost you (or great credit could save you) over the course of a $250,000 mortgage with a 30 year term:

Screen Shot 2019-06-28 at 9.02.53 AM Source

While building credit quickly to qualify to buy that dream home right now might sound appealing, sometimes it’s better to wait until you build the right amount of credit first. That way, you can save the most money and get the best deals available to you. This process could take anywhere from six months to a few years, depending on your financial situation.

Good credit – hard to build, easy to destroy

Building good credit or establishing credit from scratch takes time. It usually takes anywhere from 3-6 months or more to build credit history with the major credit bureaus in the first place. Unfortunately, damaging your credit is much easier, and can be done with just one missed or late payment. Just one missed payment could remain on your credit report for up to seven years.

one missed payment

While this might seem a little harsh, remember that your payment history is the single most influential factor in your FICO credit score, counting for 35% of your score. So paying your bills on time – whether they’re to a credit card company or on a loan payment – is incredibly important.

There are a few ways you can help yourself make payments on time. First, if it’s available, set up automatic payments. That way, you can set it and forget it — your payments will be made on time. If automatic payments are not an option for you, set a calendar reminder. Schedule it in your phone, write in on your bathroom mirror, whatever will work for you.

Just make sure you do not miss a payment!

To build positive credit (and potentially raise your credit score), do what it takes to make sure you're paying your bills on time.

If funds are an issue, try to talk to your lender before you miss a payment, to see if they’re willing to work with you, or move the payment due date. Many lenders offer a grace period before a payment counts as late or missed, some as high as 15-30 days. Many lenders will assess late fees before they report a payment as late to the credit bureaus (yet another reason to pay your bills on time).

Check with your lender or credit card companies to see what options are available to you before taking a hit to your credit report.

How late your payment is matters

Another thing to keep in mind, according to Equifax?

“In general, though, the longer a bill goes unpaid, the more damaging the effect it has on your credit score. For example, all other things being equal, a payment that is 90 days late can have a more significant negative impact on your credit score than a payment that is 30 days late. In addition, the more recent the late payment, the more negative of an impact it could have.”

If you have a missed or late payment, don’t give up and let poor credit become worse. Making that payment sooner can prevent more damage to your credit score.

If you have a history of missed payments in your past, remember that hope is not lost, your credit score can still recover. It just takes time, though perhaps more time than you'd like. The good news is you can take steps today that could help improve your credit moving forward.

3 credit habits for success

In total, five factors go into your FICO credit score. But two of them — your length of credit history and the types of credit you have — tend to happen naturally over time. The other three, however, are things you can start working on from the beginning.

1 - Pay on time every time

Your payment history is the most influential factor in your FICO credit score and makes up 35% of your score. As such, it’s crucial that you make your monthly payments on time every month.

If you happen to have late payments or an account in collections, get caught up as quickly as possible to avoid further damage.

Set up automatic payments for the future and make it a priority to pay your debts. Over time, this action will do more to boost your credit score than anything else.

2 - Keep credit card balances low

30% of your credit score is based on your credit utilization on your credit cards. Your credit utilization rate is calculated by dividing your balance by your credit limit. So, if you have a card with a $1,000 limit and a $750 balance, your utilization rate is 75%.

utilization ration example

It’s best to keep your credit utilization as low as possible. A few ways to do this include:

  • Using your credit card sparingly, especially if it has a low limit.
  • Making multiple payments each month to keep the balance low.
  • Asking your credit card issuer when it reports your balance and making a large payment before that date.

3 - Borrow responsibly

Every time you apply for a credit card or loan, it can knock as much as five points off your credit score — in some cases, it may not affect your score at all. But if you apply for multiple credit accounts in a short period, it could have a compounding effect on your credit score.

It’s wise to avoid opening up credit accounts unless you need them. Even then, try to keep your applications to a minimum as you’re working to get your credit on the right track.

The bottom line

Establishing a good credit score can make a big difference in the type of interest rates you can get, as well as the types of credit you can qualify for. But it takes time to achieve that goal. As you consider these tips, it’s important to stay focused on the actions you can take rather than the number.

With the right behavior, you’ll establish a solid foundation for building your credit to where you want it to be and keeping it there.

About the author

Ben Luthi is a personal finance writer who has a degree in finance and was previously a staff writer for NerdWallet and Student Loan Hero.

Written on June 28, 2019

Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Ready to join Self?


comments powered by Disqus