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Having no credit history means you’ll likely have a hard time qualifying for a traditional loan or credit card without a co-signer. To expand your borrowing options, you’ll need to start building your own credit history.
Here’s how you can build good credit quickly, what credit scoring factors you should focus on and how to maintain a good credit score.
How Long Does It Take to Build Good Credit?
Based on FICO, the most popular credit scoring model, you can generate a credit score after six months of reported payment history. But the amount of time it will take you to build a good credit score—at least 670 based on the FICO scoring model—varies. Consumers who don’t have a long credit history can still have high FICO scores if they practice good credit habits, like making on-time payments and keeping the amount of money they borrow low.
That said, it will likely take you longer than six months to build a good score if you’re starting from scratch. To improve your chances of reaching this goal quicker, you’ll have to open a credit account, such as a credit card. Afterward, you’ll need to demonstrate good credit behavior to improve your score over time.
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What Credit Factors Should I Focus On?
When you’re establishing credit for the first time, you should keep these FICO score factors in mind:
- Payment history (35%). Your payment history is one of the most important factors in calculating your FICO score. If you’re approved for credit, make on-time payments to add positive history to your credit file.
- Amount owed (30%). The amount of money you borrow also has a huge impact on your credit score. If you’re approved for a credit card, don’t max it out. It’s recommended that you keep your credit utilization ratio—the amount of credit you use versus your available credit—below 30%.
- Length of credit history (15%). This factor takes into account the average age of your accounts. Although having a lengthy credit score isn’t necessary for having a good score, it can have a positive effect on it.
- New credit (10%). Don’t apply for too many credit accounts at once for the sake of building credit. New credit applications typically require a hard credit check, which can ding your credit score by up to five points.
- Credit mix (10%). Having a variety of different types of credit accounts, like credit cards and different types of loans, can improve your score, but having each type isn’t required.
How To Start Building Credit
If you’re looking for ways to build your credit history, here are four steps you can take.
1. Open a Secured Credit Card
A secured credit card is designed to help consumers build credit. Unlike a traditional card, this type of credit card is easier to qualify for because it requires a security deposit. The amount of money you put down acts as collateral—something of value a provider can seize if you fail to meet repayment obligations—if you’re unable to pay your balance and helps establish your credit limit.
When searching for a secured credit card, make sure the issuer reports to the three major credit bureaus: Experian, Equifax and TransUnion. To add positive payment history to your credit file and avoid late fees and interest, pay your credit card bill in full on or before the due date.
Related: Best Secured Credit Cards 2024
2. Become an Authorized User
Another way to build credit with a credit card is to ask a family member or friend who has good credit to add you as an authorized user on their oldest credit card. If the issuer reports authorized user information to the credit reporting agencies, it could shorten how long it takes you to build credit.
3. Get a Credit-builder Loan
A credit-builder loan is a small, short-term installment loan that’s designed to help you build credit. It operates differently than a traditional loan. Instead of issuing you a lump sum of money to spend, a lender deposits the loan amount into a secured savings account until it’s repaid.
As you make payments on the loan, a lender usually reports this information to the credit bureaus, which helps you build credit. Once the loan’s term ends, the funds that were placed in the secured savings account are released to you, minus any fees.
4. Take Out a Loan With a Co-signer
If you need to take out a traditional loan instead, consider asking a family member or friend who has good credit and a stable income to co-sign for you. Before they agree to be a cosigner, explain to them that they’ll be responsible for repaying the loan if you’re unable to. To reduce your chances of defaulting and damaging your credit, only take out a loan you can afford to repay.
Fastest Way to Build Credit
Building a good credit score is generally a long-term game. For the most critical credit score factors like payment history and credit utilization, there aren’t many quick fixes besides diligently paying your debts on time every month.
Related: Best First Credit Cards
That said, you can do a few things that may help build your credit score in a few months instead of a few years. These may not be options for everyone, but they are worth looking into:
- Pay down your lines of credit. If you have unpaid debt, pay it down as fast as you can. That will bring down your credit utilization ratio, which is a major factor when determining your credit score.
- Request a credit limit increase. Increasing your credit limit can also lower your credit utilization ratio. The key is not to use your newly available credit, or else you’ll be in the same spot as before but with more debt this time around.
- Set up autopay for all of your bills. Rather than boosting your score quickly, this tip is geared more toward preventing a quick downfall. If you pay late on any of your bills—even ones that aren’t normally on your credit report—it could damage your credit score. It only takes a few minutes to set up autopay on all of your bills to prevent this from happening.
- Ask to be listed as an authorized user. If you have a trusted person in your life with better credit than you, ask if they’ll list you as an authorized user on one of their credit cards. Their entire credit history with that card would then be listed on your report, potentially boosting your score. The credit card company will issue you a credit card, but you don’t have to use it and can give it back to your friend or family member.
- Dispute any errors on your credit reports. Creditors may report incorrect information to the main credit bureaus. Get a copy of each of your three credit reports and comb through them for errors. If you find any, dispute them with the credit bureau to correct them.
How to Keep a Good Credit Score
Once you reach your goal of having a good credit score, you will have to keep practicing good credit habits to maintain it. Here are three ways you can maintain or improve your score.
1. Monitor Your Credit Reports
Credit reporting errors, such as the wrong payment status and amount, can drop your credit score. To catch potential errors, review your credit report at least once a year. Due to Covid-19, you can request a free copy of your credit report weekly with each credit bureau by visiting AnnualCreditReport.com through April 20, 2022. After the, you’ll be able to view your credit report for free once per year.
If you catch an error, dispute it with each credit bureau that lists it on your reports or the creditor that reported it.
2. Pay Your Bills On Time
Payment history is the most important credit scoring factor. To maintain your score, continue paying all of your bills on time. If one of your bills becomes 30 days past due, a creditor can report it to the three major credit bureaus and it could cause major damage to your credit score.
3. Apply for New Credit Sparingly
When you apply for credit, a lender typically performs a hard credit check to assess your creditworthiness. Each credit check can cause your credit score to temporarily drop a few points. To prevent your score from dropping a lot, only apply for credit when you need it.
Bottom Line
Building credit for the first time generally takes at least six months, but building good credit can take even longer. While you work toward your goal of building a strong credit profile, practice responsible credit habits and be patient.
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Frequently Asked Questions (FAQs)
Does leasing a car build credit?
Leasing a car will build credit as long as your lender reports those payments to the three credit bureaus. It’s worth confirming with your lender in advance.
How often does your credit score update?
Your FICO score recalculates every time someone checks it. Whether or not it changes depends on if any creditors have added new information to your credit report.
Most lenders have a regular schedule when they report information to the credit bureaus, and that may not necessarily be when you make changes. For example, if you pay off a credit card, you might not see it reflected in your credit score until a month later.
What does your credit score start at?
FICO credit scores, the most popular score lenders use, range from 300 to 850. However, you don’t generally start out at 300. Once you have enough activity on your credit file, your credit score will generate within the score range depending on various credit factors.
What is the benefit of having a good credit score?
There are many benefits of a good credit score, but one of the biggest is simply being able to take advantage of opportunities for a better life. With a good credit score, you’ll have a better chance of being approved for affordable debt accounts such as mortgages, auto loans, credit cards and personal loans. Some landlords and jobs also may require you to have a good credit score.
