How Long Does it Take to Build a Good Credit Score?
A good credit score is a very important thing to have and you should always work towards building a good credit score. Building a good credit score takes a good amount of patience and discipline. Realistically speaking, you can’t “fast track” your process of building a good credit score but there are some ways you could accelerate the process and prevent your credit score from going down as well. In this post, we will discuss all of that, and more. Let’s get started.
How Long Does It Take to Get a Good Credit Score: Things to Know
In order to build your credit score, you need to start using credit. You can do that by using a credit card or pay your loan back. It takes at least six months of continuous credit activity in order to establish enough history for a FICO credit score. This score is used for making most lending decisions. FICO credit scores range from 300-850. A “good” credit score must be above 700.
When it comes to building your credit score, don’t expect to start with an unrealistically high number. While you can build up enough credit history in less than a year to generate a score, it takes years of smart credit use to get a good or excellent credit score.
While FICO scores take six months to generate, VantageScores can be generated quite faster. Your FICO credit score is the one to watch over the long term. However, to make sure you are on the right track when starting, your VantageScore is a great indicator of the impact of your actions on your credit history.
What constitutes a credit score?
When it comes to building a credit score, good credit history over a period of time is very important. Potential lenders check for good credit history over a period of time,, which is much of what FICO scores take into account:
- Payment history (35% of score): Have you made on-time payments consistently?
- Amounts owed (30% of score): How much debt do you have compared to how much available credit you have?
- Length of credit history (15% of score): On average, how long have your accounts been open?
- New credit (10% of score): Have you opened several new credit accounts in a short amount of time?
- Credit mix (10% of score): Do you have experience managing different types of credit and loan.
Try to make your payments on time and stay away from carrying a massive credit card balance. These things will make you less risky in the eyes of the lenders and improve your credit score. Such responsible behaviour carries more weight when demonstrated over time. You can’t have responsible credit behaviour for a week and expect to see a surge in your credit score. Be patient.
How to build a good credit score?
To build a good credit score, you need to get the credit you need to create a credit history for a score. Here’s how you can go about accomplishing that:
Open a Secured Credit Card Account
Secured cards are meant for people without credit history or ones who are rebuilding their diminished credit history.
You can open a secured card account in the scenario when you aren’t eligible for other cards because this type of credit card requires a deposit. The deposit serves as a collateral for the issuer in case you default on payments. This makes approval less risky. Secured card deposits are also refundable. If you manage your card well, your issuer will upgrade you to an unsecured card.
Credit card issuers report card balances and payment history to the credit bureaus every month. These factors affect the FICO credit scores a lot and if you use your card properly, you will be able to build your credit score faster.
Start using someone else’s card as an authorized user
While you might not be approved for regular credit card usage, you do have the option to become an authorized user on someone else’s account, such as your parents’ or spouse’s account. Authorized users that have a credit card can use it like a primary account holder. However, they won’t have any legal responsibility for the account. The account’s credit history shows up on the authorized user’s credit report so long as the card issuer reports authorized user data to a credit bureau. This gives a good boost to your credit score.
If you choose to do this, the account needs to be in good standing. The balance needs to be strong and on time payments should show up in your history.
Becoming an authorized user is just a way to jump-start credit score growth. However, this shouldn’t be viewed as a long term solution for building your credit score. Real credit score growth comes from building your credit history, and not just using someone else’s. Use this tool as merely a tool for kickstarting your credit score rebuilding.
Apply for a credit builder loan
When you acquire a credit builder loan, the lender deposits the amount you are approved for into a savings account. You have to repay the loan amount and interest over time.
Unlike a traditional loan, you won’t immediately get a large sum of money right away. What happens instead, the lender will give you the money with any interest earned from the savings account once the credit builder loan is repaid in full. This helps establish the payment history data for your report when the lenders report diligently to credit bureaus. Ensure that your lender does that before taking a credit builder loan.
Try to make your non-credit bills count towards your credit history
It’s very likely that you are paying monthly bills and securities regularly. If you pay all those things timely, your credit score should also improve. Ask your landlord to report your rent to the credit bureaus. You can also use rent credit reporting services, such as RentTrack and PayYourRent. These firms will process your rent payments and send it to the credit bureaus in case your landlord isn’t signed up. It’s not a free service though.
However, all credit bureaus might not consider rent payment towards your credit score.
How to build and maintain a good credit score
Positive changes to your credit report information will boost your credit score. Like everything else in life, it’s a lot easier to damage your credit score than build it. These are some steps you can take in order to avoid that.
Buy things you can afford
Just because you have a credit card, doesn’t mean you should start buying stuff recklessly. If you are looking to build your credit score, use your card for small purchases that fit your budget. Also remember to clear your credit card bill every month.
Pay more than the minimum due in case you are carrying a balance
The goal is to keep your credit utilization ratio as low as possible. The more you pay each month, the better it is for you.
Pay your bills on time
Since payment history has the most impact on your credit score, pay on time. Late payments can impact your credit score massively.
Don’t apply for numerous credit cards
When you apply for a new credit card or loan, the lending bank always checks your credit. This is considered to be a hard inquiry. Hard inquiries will cause your credit score to dip temporarily. While it does bounce back with positive behaviour. However, if you are already starting from scratch, even a slight dip of 5-10 points can be significant. Credit bureaus also follow the number of times you apply for credit cards and it reflects in your credit. Multiple hard inquiries on your credit report are considered to be a sign that you are desperately seeking credit and are a potential risk for lenders.
Don’t close card accounts
When you are new to credit and building a score from nothing, time is your friend. Even if you eventually have a card that you stop using, don’t close the account as long as there is no annual maintenance fee. The length of your credit history has a major impact on your FICO score. The longer your card accounts run, your credit score will benefit from this.
Track your credit report closely
You can get a free copy of your credit report from all the major credit bureaus every year. Check your report thoroughly and watch out for inaccuracies and signs of fraud. In case you see any problems, report them immediately.
So that was a brief look into the steps you can take to build your credit score. Hopefully, you have a better idea of the concept now and you can start working towards building a better credit score today.