How long does it take to build good credit?

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Your credit score is more than just a number. It determines your interest rates, affects your chances of approval for loans and other credit products and influences how much you pay for auto insurance. If you want a strong financial future, you need a strong credit profile.

But how long does it take to build good credit? It depends on your circumstances. If you’ve never managed credit before, it takes about six months to see a score. It takes longer if you’re trying to rebuild your credit after bankruptcy or some other type of financial setback.

You can’t build good credit overnight, but you can take some steps to improve your financial situation. Get started by learning what factors go into your credit score and finding out how to avoid common credit-related mistakes.

How long does it take to get a credit score?

To generate a credit score, you must have at least one type of credit account. Once you have a credit card or a loan, the lender reports your account activity to the major credit bureaus. This information helps determine your credit score. If you’re starting from scratch, it takes about six months to build credit, according to the FICO® scoring method.

It takes longer to achieve an excellent credit score, as lenders want to see that you use your credit wisely. If you make on-time payments and maintain good financial habits, your score should gradually increase over time.

What factors go into your credit score?

When you apply for credit, the lender checks your score to determine if you’re likely to pay back what you borrow. Although there are many scoring models available, most lenders use FICO scores to make decisions. FICO scores range from 300 to 850, with higher scores indicating that you manage your credit wisely.

FICO has multiple scoring models, but they all use five factors to determine your score:

• Payment history: Your payment history accounts for 35 percent of your score, making it the most important factor. On-time payments help you, while late payments cause your score to drop.
• Utilization: Utilization tells lenders how much money you owe compared to how much credit you have available. For example, if you have a $3,000 balance on a card with a $10,000 limit, you’re using 30 percent of your available credit. To increase your score, keep your utilization as low as possible. This factor accounts for 30 percent of your score, so it’s also very impactful.
• Length of credit history: The longer you’ve been managing credit, the higher your score is likely to be, assuming you pay your bills on time and don’t have a high utilization rate. The length of your credit history makes up 15 percent of your score.
• Credit mix: Credit mix refers to the different types of accounts in your credit profile. If you have a credit card, a personal loan and an auto loan, you have a better credit mix than someone who has just one credit card. Your credit mix accounts for 10 percent of your score.
• New credit: Opening several new accounts in a short amount of time is risky, as lenders may worry that you plan to run up the balances and then refuse to pay them off. Therefore, new credit accounts for 10 percent of your score.

How to increase your credit score more quickly

One of the best ways to work to increase your credit score quickly is to apply for and use a credit card. Banks report this activity to the credit bureaus on a monthly basis, making it easier to build your credit profile.

Once you have a credit card, use it wisely. If you have trouble remembering payment due dates, consider using autopay to ensure you always pay on time. Although you’re not required to pay your balance in full every month, doing so can help you avoid interest charges.

If you already have multiple credit cards, one way to improve your credit is to increase the amount of available credit you have. Increasing your available credit reduces your utilization, improving your credit profile. Here’s an example.

Assume you have three credit cards with limits totaling $15,000 and balances totaling $10,000. In this scenario, your utilization is a whopping 66.7 percent. Now imagine what would happen if you paid off $5,000 of your $10,000 balance—your utilization would drop to 33.3 percent.

If you can’t pay off that much debt all at once, ask each credit card company to increase your limit. Increasing your total credit limit to $22,500 reduces your utilization to 44.4%.

What not to do when you’re trying to build credit

It takes time to build good credit, but it may take years to recover from a single mistake, so it’s important to manage your accounts responsibly. These are some of the most common mistakes to avoid.

Late payments

As noted previously, your payment history accounts for 35 percent of your score. A single late payment stays on your credit report for up to seven years, which may make it difficult to qualify for credit when you need it. To avoid the negative impact of late payments, make your minimum payments on time every month.

Multiple applications

Lenders see it as a risk when someone applies for multiple credit accounts in a short amount of time. If you want to build a strong credit profile, apply for credit only when you need it. For example, if you’re interested in getting a travel rewards credit card, it’s wise to compare several options and then apply for one instead of applying for three or four cards at a time.

High utilization

Once you have a credit card, it’s important to avoid running up the balance. Not only does a high utilization ratio hurt your score, but carrying a lot of debt is also risky. If you lose your job or suffer another financial setback, you may not be able to manage the minimum monthly payments on your balances.

Loan default

Default is when you miss loan payments for several months in a row. The lender reports every missed payment, causing your scores to drop lower and lower. If you don’t repay what you borrowed, the lender may even take you to court.

Other ways to improve your credit

Developing good financial habits is the best way to help your credit health, but you can also improve your credit in the following ways:

• Open a secured credit card: If you don’t have any experience with credit or have poor credit due to a financial setback, consider opening a secured credit card. When you open this type of account, you make a cash deposit. This deposit becomes your credit limit, allowing you to borrow against it and show you can use credit responsibly.
• Become an authorized user: If a parent, spouse or other family member is willing to add you as an authorized user on one of their credit cards, your score may increase. Note that this tactic only benefits you if the primary account owner makes on-time payments and maintains a low utilization ratio. Otherwise, becoming an authorized user on their account may hurt you.
• Avoid closing unused credit cards: Closing a credit card account changes your credit mix and affects your utilization ratio. Even if you’re not using a card, you should keep the account open.
• Check your credit report regularly: Approximately 20 percent of all Americans have at least one error on their credit reports. It’s possible for a credit bureau to mix up your file with someone else’s or for a lender to report inaccurate information, both of which can hurt your credit. Checking your reports regularly makes it easier to identify and correct these errors.

Building a strong credit future

With a little work, it’s possible to build good credit over time. If you need more information, sign up for a free credit assessment from Lexington Law to receive access to your credit score, a summary of your credit report and recommendations to help you repair your credit.

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