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If you don't have a credit history—or a history of borrowing money and paying it back—it can take several months to establish a credit score. Having a credit score is an important part of building credit, but it's just the beginning. Here's what you need to know about the credit-building process, including how long it takes, how your score is calculated and how to get started on your credit journey.
How Long Does It Take to Build Credit?
If you're just starting out, you'll need at least one credit account open and reporting to at least one of the major credit bureaus (Experian, TransUnion and Equifax) for at least six months to generate a FICO credit score. FICO® Scores☉ are used by 90% of top lenders.
With the VantageScore, however, you can get a score as soon as the first time your new account gets reported to the credit reporting agencies.
But having enough credit history to get a credit score is just the beginning. While your credit score is an important indicator of credit health, having a thin credit file—a credit report with fewer than five credit accounts—can still make it challenging to get approved for favorable financing terms.
As you add more credit accounts over time and use them responsibly, you'll likely see an increase in your credit scores, and your credit profile will become more solid. Depending on how often you take on new credit, it can take several years to build an excellent credit history.
How a Credit Score Is Calculated
A credit score is a three-digit number that uses the information that appears on your credit report to provide a snapshot of your overall credit health. Lenders refer to this score to help them determine their level of risk in lending you money.
There are many credit scoring models, but most lenders use the FICO® Score or VantageScore, both of which range from 300 to 850. Higher scores indicate you are less likely to default on a loan—in other words, that you are more "creditworthy."
Each credit scoring model uses a proprietary algorithm that weighs data differently, but the same general rules apply. Here are the main factors they consider when calculating your score:
- Payment history: On-time payments are crucial in establishing a positive payment history. If you miss a payment by 30 days or more, even just once, it can have a significant negative impact on your score.
- Amounts owed: The total amount you owe is considered, but the most influential factor is your credit utilization rate. This rate represents the percentage of the available credit on your credit cards and other lines of credit that you're using at a given time. A low credit utilization rate is better for your scores, while high utilization can hurt scores.
- Length of credit history: In addition to how long your oldest account has been active, scoring models also consider the average age of your credit accounts and when they were last used.
- Credit mix: Having a good mix of credit—including installment loans such as car loans and personal loans, and revolving credit such as credit cards—shows that you're capable of managing different types of credit.
- New credit: This factor focuses on how often you apply for credit. Each new hard inquiry a lender makes on your credit report when you apply for credit won't have a huge impact on your score, but if you apply for a lot of different types of loans and lines of credit in a short period of time, it can have a compounding effect.
Reasons Why You May Not Have a Credit Score
There are a few different reasons why you may not have a credit score, even if you've used credit in the past:
- You're a young adult and haven't entered the world of credit yet.
- You're an immigrant to the U.S. Even if you've used debt in your home country, it won't be listed on your credit reports from the three major U.S. credit bureaus.
- You've never used traditional credit accounts that are reported to the credit bureaus.
- You've recently opened one or more credit accounts but don't yet have enough history to generate a score.
- You haven't had a credit account report to the credit bureaus recently. FICO requires accounts to report at least every six months, but VantageScore may include data from accounts more than 24 months old.
How to Start Building Credit
When you're just starting out, you won't have as many opportunities as someone who has good or excellent credit. But there are still plenty of options available to help you achieve your goal.
1. Sign Up for Experian Go™
Experian Go™ is a free program that offers guidance and resources as you start your credit journey. In addition to offering insights and tools, Experian Go establishes an Experian credit report in your name so you can track your progress and begin the process of building credit.
2. Apply for a Credit Card
Depending on your situation, there may be different credit cards available to help you establish your credit history:
- Student credit cards: If you're a college student, student credit cards can offer rewards and special perks tailored to students without requiring a security deposit as collateral. However, it can be challenging to get approved on your own for a student credit card without a decent income.
- Alternative credit cards: Some credit cards don't require a credit history to get approved. Each of these cards works a bit differently, but all of them report your account activity to the three national credit bureaus.
- Secured credit cards: Secured cards require an upfront security deposit, usually $200 or more, to get approved. Your security deposit typically becomes your credit limit, and the deposit is used if you stop making payments on the card. Otherwise, secured credit cards work the same as traditional unsecured credit cards. You can usually get your deposit back after you close your account, but some card issuers will return it sooner if you show good credit habits.
- Store credit card: Many retailers offer store credit cards that you can use to build credit. These cards typically don't have high credit score requirements, but keep in mind that they can be expensive and encourage overspending.
3. Get a Credit-Builder Loan
Credit-builder loans are solely designed to help you improve your credit score, so they function differently than other loans. Instead of giving you the loan amount up front, the lender sets it aside in a savings or certificate of deposit (CD) account.
Then, once you've finished making payments, the lender gives you the funds plus the interest accrued from the savings or CD account. Since the lender holds onto the cash from the beginning, many credit-builder loans offer decent interest rates.
Just make sure the lender reports your payments to all three credit bureaus to ensure that the loan is effective in building your credit.
4. Become an Authorized User
Another option is to piggyback off an already-open account as an authorized user. A parent, spouse or other family member can add you to their credit card account with a separate card. You will build a credit history based on the usage of that card, but the primary cardholder will be the one who must pay off any charges.
If you're going with this method, choose someone you know is responsible with their credit card and be sure to establish rules with the primary cardholder regarding how you will use the card.
Monitor Your Credit to Track Progress and Address Issues
As you work to build your credit history, it's crucial that you monitor your credit regularly to stay on top of your credit. With Experian's free credit monitoring service, which is included with Experian Go™, you'll get free access to your FICO® Score (once you have one) and Experian credit report.
What's more, you'll get real-time alerts when changes are made to your credit report, so if issues do arise, you can address them quickly to avoid further damage. While it can take time to build credit, your efforts can pay off in the long run in the form of more financing opportunities and savings.
The Experian Credit Course: A Complete Guide for Beginners can help you learn more about how to build credit from the ground up. The short online class provides all the basics of building credit, with videos and quizzes to help you feel confident going forward in your credit journey.