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Building (and rebuilding) credit is mostly about patience and repetition. How much time it takes depends on how well you can stick to a plan.
How Long Does it Take to Build Credit?
For most people, it takes around 12 months to build top-tier credit. You could get 760+ credit scores in as little as 6 months if you’re starting with a score in the 600s already. Or, if you have horrible credit, it could take 2 years to turn things around.
Unfortunately, the real answer is frustratingly vague: it takes as long as it takes.
Building your credit (or rebuilding it) depends on a few factors:
- Your starting point: Are you just starting out and have no credit history? Or are you trying to make up for a bad credit history riddled with problems? How much debt do you have? Are you looking for building your business credit or personal credit?
- Your current financial situation: After you cover your day-to-day expenses, how much money do you have left over (if any) to tackle your debts? Do you need to make some tweaks to your financial situation?
- Your stubbornness: There’s probably a nicer way of putting that, but honestly? Your ability to stick to a plan, even when it’s hard or when shiny things are distracting you, is important.
- That blasted algorithm: The major credit reporting bureaus use an algorithm that considers several, individually-weighted factors to determine your credit score. The exact formula is a guarded secret, but we’ve figured out the basics of how the FICO 8 Score works.
How is a Credit Score Calculated?
Whenever I see the word “algorithm” I imagine lots of super smart people standing around looking at a whiteboard filled with what looks like an alphabet collage and calling it math.
And then I panic a little bit because it all seems so complicated and I am definitely not Felicity Smoak (no matter how much I wish I were).
Based on credit score statistics, however, financial experts agree that the credit score algorithm can be broken down into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%).
Let’s break some of these down.
To prove that you’re a low credit risk, you need to prove that you pay your bills on time. This is what credit card issuers and lenders care about most, which is probably why your payment history accounts for 35% of your credit score.
On-time, missed, delinquent, and even 30-day late payments get reported to the major bureaus. The closer your on-time payment rate is to 100%, the closer you are to an excellent credit score.
It’s the 21st century. Most of us have some sort of debt that we’re trying to overcome. What matters here, though, isn’t just how much you owe.
In fact, Experian data shows that some people who carried the most debt actually had excellent credit scores!
Your credit utilization also factors in here. How much of your credit limit you use is a huge factor. This is why paying down your credit cards to below 10% of your overall balance could give you a huge, immediate credits score boost. See also If I Pay Off My Credit Card in Full, Will My Credit Go Up? for more information on this topic.
Length of Credit History
Your credit history is more than just your payment history (that’s why we separated them). Credit bureaus will look at these details in your credit file:
- When you opened accounts
- When you closed accounts
- How long you’ve been utilizing credit
It’s like your permanent record, except that your credit history is 15% of your credit score. The “average length of account” is an important factor to look at on your credit report.
There are personal loans, car loans, home equity loans, payday loans (though those typically aren’t reported to the major credit bureaus unless you’re sent to collections), and those ever-present student loans.
Your loans are a form of debt, which is otherwise known as “amounts owed” and this affects 30% of your credit score. That is a big percentage, so it’s important to aggressively work towards paying off your loans as soon as you can.
New credit makes up 10% of your credit score. And, in news that would probably make Schrodinger feel smug, opening a new line of credit can both help and hurt your credit score.
New credit helps your credit scores because it can improve the ratio of available credit to used credit and increases your credit mix if it is a different type of loan.
But new credit also hurts your credit scores because it lowers the average age of the accounts in your credit history and includes a hard inquiry that can drop your score a few points.
How to Start Building Credit
Emotionally speaking, building credit is overwhelming. That’s because having to figure out how to afford even basic necessities can be stressful!
Mechanically speaking, building credit is simple. It’s more positive repetition than anything else. As you repeat positive behaviors, you’ll phase out poor credit mistakes and your FICO score goes up.
Apply For a Secured Credit Card
Secured credit cards are credit lines you “secure” with a deposit. You give the card issuer a sum of money (usually around $300) and they give you a card that works like a credit card. Your credit limit is equal to your initial deposit. Secured cards are a great place to start, also check out our article, How to Build Credit When You Have None, for more information.
Then you use the card responsibly. An easy way to do this is to use your card to pay for a streaming media account or two and then set up automatic payments on your card.
Bonus Tip: If you use your secured cards responsibly, eventually, some creditors will refund your deposit and transition you over to an unsecured card. Those are great because they tend to come with perks. They might even raise your credit limit or lower your interest rate!
Get a Credit Builder Loan
“Credit builder loan” is a misnomer. They are less of a loan in the traditional definition and more of a savings account that reports your payments for a length of time. Once that time is reached, then you can receive the amount you stored in the account.
The company reports it as an installment loan, which also boosts your credit mix.
This is a great start to building your credit score.
Report Your Bills to the Credit Bureaus
If all of your credit and loan payments get reported, shouldn’t you also be able to report your on-time rent and utility bill payments? What about subscriptions? Insurance? Medical bills?
You can. And you should, especially if you’re trying to rebuild your credit. The more on-time payments you have on your record, the better!
The ability to report on-time bills to the bureaus is a relatively new (and welcome!) trend. Experian BOOSTTM, StellarFi, and BoomPay are just a few of the companies you can partner with to do this.
Here are some of the bills you can get credit (pun absolutely intended) for:
- Electric Bill
- Subscriptions (This varies by company though, so you should always read the fine print.)
5 Tips to Improve Your Credit Score
Okay, time for the real talk: Building a good credit score breaks down into five followable steps.
They might seem daunting when you first mount your approach, but as you get into a good routine, you’ll probably keep doing them out of habit. Then it’s just lather, rinse, repeat…maybe even profit.
Always Pay Your Bills On Time
I might have mentioned this one a couple of times already.
Look, I get it. You only have a finite amount of money and it only stretches so far. If the choice is between keeping your power on and paying the credit card company, you’re going to choose your utility bill.
(And, of course, you’re going to make sure that on-time payment gets reported!)
If you’re struggling to keep up with the bills, try setting up a budget (or reworking the one you have) to see where you might be able to reallocate more of your funds to your bills. You can even consider talking to a financial advisor. Whatever it takes, just keep those bills paid.
Seriously, making even the minimum payment on time is better than nothing.
Maintain a Good Credit Mix
Your credit must be from a variety of sources. You want to have a good mix of credit cards, loans, and other financing/credit accounts. This will show that you can handle a variety of types of debt:
- Short-term (like credit-building loans)
- Long-term (car or mortgage loan)
- Ongoing (also called revolving credit; it refers to financial products like credit cards and store cards)
A good credit mix, especially when you’re trying to raise your credit score, is a couple of credit cards and a different type of loan.
If your FICO Score is low or your credit history is spotty, you can achieve this by setting up a secured credit card and a credit-building loan.
Have a Low Credit Utilization Ratio
You always want to have more credit available to you than you owe. A good rule of thumb is to keep your credit utilization under 10%.
To keep the math simple, we’re going to use easy, round numbers to show you what we mean.
Let’s say that the total amount of credit you can use is $100. You never want to use more than $10 of that in a month.
This is where you might assume that having any debt at all is bad. Not true! You need to have some credit utilization so that you can…wait for it…build a strong repayment history.
Having a low credit utilization also means that you won’t be paying through the nose in interest charges. That’s a benefit, right?
Only Apply for Credit You Need
When you heard about the importance of low credit utilization, was your first thought something like:
“I’ll just open up a bunch of cards and accounts and only use a couple of them!”?
Stop! Leave the frogs alone, Grogu.
More available credit = More temptation to spend
However, the bureaus will forgive multiple entries if they are made for a single type of financing within a short period of time (like trying to finance a car or home mortgage).
The trick is to do all of your research ahead of time and then submit all of your applications within 14 – 45 days.
All of those applications will be counted as one single credit request instead of dinging you for each one.
Keep Track of Your Credit Reports
Guess what: Your credit report probably has mistakes in it. Most credit reports have them. According to the Consumer Reports, one-third of credit reports have errors on them.
At minimum, you need to go through your report once a year to make sure it is error-free. If you do find mistakes, you can report them to the credit reporting bureaus and (hopefully) get them removed. This is the first step to credit repair and raising your credit score.
When you’re trying to build credit, you should keep a close eye on your report. The easiest way to do this is with a credit score app.
These apps also make it easier to protect your identity so you can report suspicious activity before your credit takes a hit.
That’s it! These are the steps you should take to build the perfect credit score. You’ll see your score start to go up within a few months. Then you just need to keep repeating these steps. Your credit score will keep climbing as long as you stick to the plan.
- The Best Credit Building Apps in 2023
- How to Build Credit As a Teenager
- How to Build Credit When You Have None
- How to Rebuild Credit Fast
Erin Steiner has been freelancing for more than 15 years. During that time she has written extensively on the topics of personal finance, particularly credit, budgeting, taxes, and fintech. As a polymath, Erin’s specialty is taking complex subjects and breaking them down in entertaining ways to help readers better understand them. She is also very proud of the fact that she has never had to hire an accountant to help her do her taxes. She’s been doing them entirely on her own since 1996.