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

If you want to get ahead financially, it’s important that you have a strong credit report and score. Your credit score tells banks, mortgage lenders, car dealerships, landlords and credit card companies how trustworthy you are, and that you can be expected to pay back any money given to you. 

But, getting a good credit score isn’t just about paying your credit card balance on time (though, that can certainly help). It actually takes time to build good credit, especially if you’re starting from scratch. In fact, your credit history is one of the factors that impact your credit score.

So, how long does it take exactly to build good credit, and what can you do to achieve it faster? Building a strong credit history can take up to seven years, but establishing a good credit score can be done in a few short months if you’re prepared with the knowledge, tools, and resources to get you there. 

Understand What a Good Credit Score Is

The first step in building your credit score from scratch is having an understanding of what makes a “good” credit score. According to Equifax, one of the three main credit reporting companies (with the other two being TransUnion and Experian), scores from 670 to 738 are considered “good”, 740 to 799 is considered “very good” and 800 to 850 is considered “excellent” — though some consider 740 and up to be excellent, too. Of course, anything under 669 is less than “good”, and will range between “fair” and “poor” as you go down to 350, which is the lowest number you can have. 

Know the Difference Between Length of Your Credit History Vs. Time to Establish Good Credit

The length of your credit history plays a role in building your credit score, and unfortunately, is one of the factors that you might not have much control over. This is because the longer your history, generally, the higher your credit score will be. The special number? Seven years. If the age of your credit history — or your oldest account — is at least seven years, this factor will have a positive influence on your overall credit store.

That being said, the moment you open up a credit card or another type of loan, utilize that credit, and pay it off on time, the quicker you can start building that credit — and it only takes between two and six months to notice an increase in your score, even if it’s just a blip! However, after six months is when you’ll really start to notice a change. 

Other Factors That Impact Your Credit History

The length of your credit history is just one factor that impacts your score. Credit rating companies take some factors into account more than others, but ultimately, they evaluate these factors, including what percentage that factor has on your overall score, and assign you a number — your credit score — based on them.  These include:

• Your payment history: Do you pay your bills on time, or do you pay them late?
• Amounts owed/credit utilization: How much money do you owe from all your debts and accounts? Are your credit cards maxed out?
• Diversification of credit accounts: If you have multiple credit accounts/lines, how are you managing all of them?
• New credit accounts: If you recently opened up a lot of new accounts, this can impact your credit score negatively.

The length of your credit history is 15% of your overall score, but it’s also one of the factors you don’t have much control over. Once you start building credit, you may see that this is one of the areas that’s bringing your score down; but, you have to start somewhere, and as long as you’re doing everything else right, you’ll get there!

5 Ways to Build Your Credit from Scratch

According to Discover, you start with a score of 300 once you start your credit journey. Before this, your credit history just doesn’t exist. Once it appears, you can start building it up. 

Though the length of your credit history helps you get a good score, that doesn’t mean you can’t start building your credit in a few months. To build good credit up, you’ll typically need to start off small. The more you build your credit, the more access to credit you’ll get, which will give you the opportunity to continue building on your established credit. Though access to credit at the beginning will differ for everyone, here are five easy ways to get started:

1. Start Young

Starting off small is one thing, but it’s also important to start off young. The sooner you’re able to take out a credit card, for instance, the better. You’re never too young to learn financial literacy and start making moves to build your credit. And, as we know, the longer your credit history, the more it has a positive impact on your overall credit score. 

Sometimes, parents will help their children begin establishing credit by making them an authorized user on their credit card or cosigning for them, too. But, this is something that should be discussed as a family. 

2. Pay Your Bills On Time

A major factor in your credit score is your payment history, so don’t let your bills go unpaid. Have a system for managing your bills, and/or set up your account for automatic payments to ensure you never miss one. 

Additionally, always follow up on payments to make sure they were processed and paid, and if you move homes, update your address with all your creditors so that you don’t get a bill arriving at your old address that ultimately goes unpaid. Another tip to avoid this, then, is to make sure you’re set up for e-bills whenever this option is available.

3. Get a Credit Card with a Low Limit

It can sometimes take time before you’re eligible for your first credit card, but getting a credit card with a low limit to help you build your credit slowly, surely, and safely, is a good way to get started. Don’t overspend and try not to carry a balance so you don’t pay high interest rates, which can end up hurting your credit more than helping it. And, when the time comes — and if you’re responsible enough to handle it — you can ask the company to increase your limit. 

4. Diversify Your Credit When Possible

Instead of just increasing your limit on a credit card — which is one way to enhance the ”credit utilization” factor that goes into determining your credit score — you can and should diversify your credit when possible. 

Establishing credit is like training yourself to hike a mountain; you have to start off with the smaller, easier, and shorter hikes which will give you the strength to implement in the harder hikes. This is to say that the more you build and utilize your credit, the more likely it will be that you’ll get approved for other credit types. When you use those properly, you’ll keep increasing your credit and what you’re eligible for, increasing your credit score in the process. (Of course, this can also work the opposite way if you’re not careful, so don’t ever take on more than you can handle.) 

By diversifying your credit — by taking out a car loan, another credit card, etc. (but, spacing them out so you don’t have so many ‘new’ credits on your account, which can hurt your credit) — you can build on it. 

5. Avoid Potentially Negative Hits on Your Credit

This might seem like a given, but if you can avoid it, don’t do anything that will negatively impact not just your score, but your ability to build good credit overall. While credit can always be repaired, incidents like bankruptcies can stay on your credit report for up to ten years. This is longer than it takes to establish a healthy credit history. That means that you want to start making good choices by paying all your bills on time and not starting your credit life with too much debt. 

So How Long Does it Take to Build a Good Credit Score from Scratch?

Building a good credit score from scratch can take just a few months. But, the longer you work on establishing a healthy credit score, the better. And, once you get to that seven-year mark, your history alone will have a strong impact on your credit. If you’re thinking, “Wow, seven years is a long time to really build my credit”, you’re right; it is a long time. Building credit is not something that happens overnight. It takes time — no matter how disciplined and prepared you are to build your credit — but the sooner you get started, the better!

Sources

Experian – What Affects Your Credit Scores?

Equifax – What is a Good Credit Score?

Money Under 30 – How Long Does It Take To Build Credit From Nothing?

StudentLoanHero – How Long Does It Take To Build Good Credit From Scratch?

Experian – How to Remove Bankruptcy from Credit Report

Categorised in: Borrowing Tips

This post was written by David B. Coulter