How long does it take to build credit?

Whether you’re completely new to loans and credit cards or trying to recover from some mistakes in the past, the idea of credit-building can sound a little daunting. But even though it can take time to build an excellent credit score, there are lots of things you can do to polish up your credit file and boost your score — sometimes within just a few months.

How long does it take to build good credit?

There are two different kinds of credit scoring models that most lenders use in order to evaluate borrowers: the FICO, developed by the Fair Isaac Corporation, scoring model and the VantageScore model. In order to get a FICO score, you need to have at least one credit account open for at least six months. VantageScores, on the other hand, are available for people with at least a month of credit history. However, having credit and building good credit are different matters. It’s hard to say exactly how long it will take for you to achieve good or excellent credit if you’re starting from scratch. It will depend greatly on the types of accounts you open, when you open them, whether you miss any payments, etc.

Opening new accounts can help thicken your credit file and help you demonstrate to credit bureaus that you can responsibly manage different types of credit. However, applying for new credit — including refinancing — can result in a small but temporary drop to your credit score. Plus, every time you open a new account, the average age of your other accounts will go down, so you also have to do a bit of balancing to make sure you don’t open too many new accounts too quickly. 

Tips on how to build credit fast

A strong credit score can help you in many facets of your financial life. It can affect your ability to get approved for loans, credit cards, or even secure a rental agreement. If you’re looking to build credit quickly, here are some tips and strategies to help you get started.

1. Pay your bills on time

One of the most crucial steps in building credit is establishing a history of on-time monthly payments. Your payment history accounts for a significant portion of your credit score, so make sure you pay all of your bills, including credit cards, loans, and utilities, on time. Consider setting up automatic payments or calendar reminders to help you stay organized and avoid late payments.

2. Get a secured credit card or become an authorized user

If you have limited credit history (or none at all), you might find it difficult to get approved for a traditional credit card. In these cases, consider applying for a secured credit card. This is a great stepping-stone option that can help you qualify for a traditional credit card later. With a secured card, you’ll need to provide a cash deposit as collateral. This cash deposit acts as your credit limit. Use the card responsibly by making small purchases and paying off the balance in full each month. If you do, the card issuer will report those good credit habits to the credit bureaus, which will help you boost your score. Some secured cards will also “graduate” to a traditional card after a certain time period of responsible use.

Another option is to ask a close friend or family member to add you as an authorized user on their credit card. This allows you to use their card and benefit from their positive credit history, which can help you build credit faster. Just ensure that the primary cardholder has a strong payment history.

3. Take out a credit builder loan

A credit-builder loan is a type of loan designed specifically to help you build or improve your credit score. Unlike with a traditional loan, you won’t get the funds upfront when you borrow one. Instead, you’ll pay a security deposit and make regular on-time payments over a set period, and the lender will report those payments to credit bureaus. This can help you build up a track record of on-time payments and responsible credit use. In turn, that can help improve your credit score over time. This can also help you build good personal finance and habits as you practice budgeting for the monthly payments.

Once you’ve paid off the loan in full, you’ll receive the funds you borrowed, minus a fee for using the service. Credit-builder loans can be very helpful if you have limited credit history, or if you’ve had some financial challenges in the past.

4. Maintain a low credit utilization ratio

Your credit utilization ratio measures the amount of credit you’re using relative to your total available credit limit. To build credit quickly, aim to keep this ratio below 10% if you can. For example, if your credit card has a $3,000 limit, try to keep your balance below $300. High credit utilization can negatively impact your credit score, so be mindful of how much of your available credit you’re using.

5. Regularly check your credit report

Monitoring your credit report is essential for building credit. For one thing, it helps you make sure you’re on track toward your goals. For another, it allows you to identify any credit reporting errors or discrepancies that may be impacting your credit score. You can request a free credit report from each of the major credit bureaus (Equifax, Experian, and TransUnion) once a year through annualcreditreport.com. Once you have your credit report in hand, review it carefully. If you find any inaccuracies or suspicious errors, dispute them promptly to have them corrected.

6. Avoid going deeper into debt

While it’s important to use credit responsibly to build your credit history, be cautious about increasing your overall debt. Taking on excessive debt can strain your finances and negatively impact your credit score. Only borrow what you can afford to pay back, and avoid maxing out your credit cards or taking on multiple loans simultaneously. If you already have debt, try to pay off your balances as quickly as you can. Remember — every time you open a new line of credit, it can temporarily hurt your credit score. Open too many in too short a time and you could see your credit score drop significantly. 

7. Use a credit-boosting service

Credit-boosting services could help you improve your FICO score instantly by linking additional financial information to your credit score. These services include Experian Boost, which links data like your phone bills and streaming services. UltraFICO can help you start building credit if you don’t have a score at all. This service uses your banking information — like checking and savings account details — to analyze your cash flow.

Both Experian Boost and UltraFICO only use positive information to impact your score, so they can only help you — not hurt you. Any negative information gets left out of their regular reporting. So, if you miss a payment for a streaming service because the card on the account expired, for example, you won’t end up with poor credit because of it.

Building a credit score: FAQs

As you work toward building your credit score, you may come up with other questions about the process. Here are answers to a few FAQs to help get you started.

Why don’t I have a credit score?

If you’ve never had a credit card or a loan, or if you’re very young, you may be credit invisible. This isn’t the same as having bad credit, as it just means you haven’t had the chance to prove yourself trustworthy yet. Regardless, it can make it harder to get approved for loans and different types of credit. Many companies may not want to take a risk on borrowers without a credit profile, and if they do, they may charge higher interest rates.

What is a good credit score?

The two numbers you need to know are your FICO score and your VantageScore. These two credit scoring models have slightly different credit score ranges, so whether your score is “good” depends on which scale you’re using.

FICO scores range from 300 to 850 as follows:

• 300-579: Poor

• 580-669: Fair

• 670-739: Good

• 740-799: Very Good

• 800-850: Exceptional

VantageScore 3.0 and 4.0 models range from 300 to 850 as follows:

• 300-499: Very poor

• 500-600: Poor

• 600-661: Fair

• 661-780: Good

• 781-850: Excellent

If you’re in your 20s or 30s, it’s very possible that the credit reporting agencies still see your credit file as fairly young. Your score will improve with time if you keep making your loan payments and paying your bills on or before their due dates. 

How is my credit score calculated?

Your credit score is calculated based on a mix of factors that paint a picture of your credit habits. Seeking new credit, missed payments, and the different types of credit you use.

For example, here’s how your FICO score breaks down:

• Your payment history (35%)

• Your credit utilization rate (30%)

• The length of credit history (15%)

• Credit mix (such as personal loans, student loans, and credit card accounts) (10%)

• Credit inquiries for new accounts (10%)

How long does a hard inquiry stay on my report?

A hard inquiry, also called a “hard credit check,” is a formal application for credit, and it can stay on your report for up to two years. If you’re shopping around for loans and want to check a ballpark of the rates you may be offered — such as when you check your rate with Earnest to apply for or refinance a student loan — that’s considered a soft credit check, and it’s not recorded on your report.

Can I take out a loan without a good credit score?

If you have poor credit or no credit, it can be tough to qualify for many types of loans — including car loans, home loans, and private student loans¹ — on your own. However, you can often get around this by applying with a cosigner. A cosigner is someone who leverages their credit history to vouch for your ability to pay off the debt. Cosigners are an especially popular choice for student loans, since college students rarely have a strong enough credit score to qualify for low rates on their own. Generally, the better your cosigner’s credit is, the lower your interest rates will be. The downside is that your cosigner’s credit can be seriously damaged if you aren’t able to make your loan payments, so be sure to get in touch with your lender immediately if you’re struggling.

You can also get approved for federal student loans, as long as you’re a U.S. citizen or permanent resident. All federal loan borrowers receive the same interest rate, regardless of credit score. So, if you have no score at all, you’ll still qualify. Federal loans also have a wide range of protections for students to help prevent default, so these should always be your first choice when applying for educational financing.

Find a low-cost student loan with Earnest

Building credit fast requires a disciplined approach and consistent financial habits. But if you pay your bills on time, use credit responsibly, and regularly monitor your credit report, you could start to see improvement within several months.

One of the best ways to start building credit history is to take out a new loan and start making payments on time. If you’re a student, taking out either a federal student loan, or a private student loan with a cosigner, could help you begin to establish your credit history.

If you already have student loans, refinancing² could help boost your score over the long term. If you’re currently struggling to make your payments, refinancing could help you secure a lower monthly payment. That in turn can help you avoid missed payments — one of the biggest culprits behind dropped scores.  

If you meet your lender’s eligibility requirements, you could also score a lower interest rate through refinancing³. That could help pay off your debts faster, reducing your credit utilization ratio, and helping you ultimately raise your credit score. Ready to see how much you could save? Check your rate with Earnest today. It’s free, it only takes minutes, and it only involves a soft credit check — which means it won’t affect your credit score.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Before applying for private student loans, it’s best to maximize your other sources of financial aid first.  It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grants, and work-study opportunities.  2) Next, fill out a FAFSA(R) form to apply for federal student loans.  Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if you're struggling with your payments.  3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2.  For more information, visit the Department of Education website at https://studentaid.gov/.

2 Please note that you may lose benefits associated with your underlying federal loans, such as federal Income-driven Repayment Plans (an example of which is the SAVE plan), Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options, if you refinance into a private loan. If you file for bankruptcy, you may still be required to pay back this loan.

3 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for the total cost of your refinanced loan.