How long does it take to get credit for the first time? – Councilor Forbes

Having no credit history, you will 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 is how you can build good credit quickly, what credit scoring factors you need to focus on and how to maintain a good credit rating.

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 time it will take you to build a good credit rating—At least 670 depending 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 payments on time and keeping the amount of money they borrow low.

That said, it will probably take you over six months to get a good score if you start from scratch. To increase your chances of reaching this goal faster, you will need to open a credit account, such as a credit card. Then you will need to demonstrate good credit behavior to improve your score over time.

What credit factors should I focus on?

When 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 your credit application is approved, make payments on time to add a positive history to your credit report.
• Amount due (30%). The amount 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 is recommended to keep your credit utilization rate—The amount of credit you are using against your available credit — less than 30%.
• Length of credit history (15%). This factor takes into account the average age of your accounts. While it is not necessary to have a long credit rating to have a good rating, it can have a positive effect on it.
• New credit (10%). Don’t apply for too many credit accounts at once in order to create credit. New credit applications usually require a firm credit check, which can lower your credit score by up to five points.
• Credit mix (10%). Have a variety of different types of credit accounts, like credit card and different types of loans, can improve your score, but it is not necessary to have every type.

How to create credit for the first time

If you are looking for ways to build your credit history, here are four steps you can take.

1. Open a secure credit card

A secure credit card is designed to help consumers build credit. Unlike a traditional card, this type of credit card is easier to qualify because it requires a security deposit. The amount of money you deposit serves as collateral – a value a vendor can grab if you don’t meet your repayment obligations – if you aren’t able to pay your balance and helps set your credit limit .

When looking for a secure credit card, make sure the issuer reports to the three major credit bureaus: Experian, Equifax, and TransUnion. To add a positive payment history to your credit report and avoid late fees and interest, pay your credit card bill in full on or before the due date.

Related: Best Secured Credit Cards 2021

2. Become an authorized user

Another way to accumulate credit with a credit card is to have a family member or friend who has good credit add you as a Authorized user on their oldest credit card. If the issuer communicates authorized user information to credit bureaus, it could shorten the time it takes you to build credit.

3. Get a builder loan

A credit builder loan is a small, short-term installment loan designed to help you build credit. It works differently from a traditional loan. Instead of paying you a lump sum of money to spend, a lender deposits the loan amount into a secured savings account until it is paid off.

When you make payments on the loan, a lender usually reports this information to the credit bureaus, which helps you build your credit. Once the term of the loan is over, the funds that were placed in the guaranteed savings account are returned to you, net of 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 of co-sign for you. Before he agrees to be a co-signer, explain to him that he will be responsible for repaying the loan if you are unable to do so. To reduce your chances of defaulting and deteriorating your credit, only take out a loan that you can afford to pay off.

How to maintain a good credit rating

Once you reach your goal of having a good credit rating, you will need to continue practicing good credit habits to maintain it. Here are three ways you can maintain or improve your score.

1. Monitor your credit reports

Credit report errors, such as incorrect payment status and payment amount, can lower your credit score. To spot potential errors, examine your credit report at least once a year. Due to Covid-19, you can request a free copy of your credit report each week from each credit bureau by visiting AnnualCreditReport.com until April 20, 2022. After, you will be able to view your credit report for free once a year.

If you find 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, keep paying all of your bills on time. If any of your bills are 30 days past due, a creditor can report it to the three major credit bureaus and it could cause significant damage to your credit score.

3. Apply for new credit sparingly

When you apply for credit, a lender usually performs a credit check to assess your creditworthiness. Each credit check can temporarily lower your credit rating by a few points. To keep your score from dropping too much, apply for credit only when you need it.

Final result

Building credit for the first time usually takes at least six months, but building good credit can take even longer. As you work toward your goal of building a strong credit profile, adopt responsible credit habits and be patient.