How Long Does It Take to Build Good Credit From Scratch?

build good credit

So many financial services providers use your credit history when deciding what offer you qualify for, it’s no wonder your credit file is an important aspect of your finances.

Essentially, the information in your credit history is used to generate a credit score. And building good credit score is important if you want access to the best terms for financial products.

Whether you are applying for a credit card or a loan, your credit matters. The better your credit, the more likely you’ll be approved for a loan — and get a lower interest rate.

If you want access to the best terms when it comes to financial products and services, here’s everything you need to know about how to build good credit from scratch.

Is your credit file too thin?

Since credit scores are based on information in your credit report, you can’t be assigned a score if you have a thin file.

In 2015, the Consumer Financial Protection Bureau (CFPB) released a report indicating that about one in 10 consumers (approximately 26 million) were credit invisible in 2010. The CFPB considers a consumer’s credit invisible if they haven’t used credit to generate a report.

On top of that, there are an additional 19 million consumers with a credit report with information that is too old or too little to calculate a reliable score.

If you have no credit history, or if you have a thin file, it can be difficult to get a loan when you want one. Even getting a credit card can be challenging when you don’t have a thick enough credit history.

Therefore, if you expect to apply for a loan at some point, get approved for an apartment, or get the best rate on your insurance, you might want to learn how to build good credit from scratch.

How long does it take to build credit?

The good news is that it doesn’t take too long to build up a credit history.

According to Experian, one of the major credit bureaus, it takes between three and six months of regular credit activity for your file to become thick enough that a credit score can be calculated.

How thick your file becomes depends on how many loans you get during this time. And, how often you use credit.

One of the fastest ways to build credit is to get a credit card. However, if you have a thin file, you might end up with a very small credit limit.

Or, if you don’t qualify for a “regular,” unsecured credit card, you can also apply for secured credit card. A secured card does require a security deposit. However, it’s easier to get approved for this type of credit card when you have a thin file.

At the end of the day, credit cards can help you build credit faster because of how often your information is reported to credit bureaus.

Many credit card issuers report information about your credit card balance and payment each month. So if you make a purchase or two each month and then pay them off, that will be reflected in your credit history.

Both FICO and VantageScore heavily weigh payment history, as well as how much of your credit you are using.

Therefore, each time you make an on-time credit card payment and maintain your outstanding balance below 30 percent of what’s available to you, you create positive information for your credit report.

Why is it so easy to destroy credit?

Unfortunately, it’s much harder to build good credit than it is to destroy it. While it takes three to six months just to accrue enough information in your file to be issued a credit score, it can take much less time to reduce it.

When you miss a payment or default on a loan, it can take your credit score down a notch. You might be surprised to find, too, that the better your credit, the larger the impact of a negative item.

In 2014, credit reporting agency Equifax reported on the impact late payments could have on your FICO score. They discovered that a 30-day delinquency on a loan could result in a drop of as much as 110 points for someone with a FICO score of 780 and no prior delinquencies.

On the other hand, the drop is only between 60 and 80 points for someone with a lower score and past delinquencies.

What are some other way to build good credit?

You can also add a little bit more to your credit file by getting an installment loan.

In fact, did you know that your student loans are installment loans? Additionally, you can get a personal loan and pay it off in installments.

Essentially, diversity of credit makes a siginificant positive difference to your score. And having a small personal loan, on top of a credit card, can be a great way to build good credit from scratch.

Or, if you can’t get a personal loan or other small installment loan on your own, consider asking someone you trust to cosign.

Cosigning often gets a bad rap because the cosigner is just as responsible for the loan.

Thats why before you ask someone to cosign, make sure you are in a position to pay off the loan yourself. You don’t want to stick a friend or relative with the consequences if you aren’t able to handle the debt.

Another way to pad your thin credit file and build credit faster is to have yourself added as an authorized user to someone else’s account. You can only do this if you have a close relationship with the account owner, so this strategy works best with a parent or a spouse.

And, if your parents are willing to add you as an authorized user, you get the benefit of their good credit. You won’t see the same impact as you would with your own credit, but it does help — even if you never use the credit card you are issued.

Why should you maintain good credit?

Building good credit is essential to your long-term financial health if you want to be able to borrow for major purchases like homes and cars.

Although it takes some time to build good credit from scratch, it’s not impossible. Once you build that credit, though, it’s important to stay on top of things so you don’t end up destroying everything you’ve worked so hard to build.

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