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ACU Blog  / Exactly How Long Does it Take to Build Credit?
21 August 2020 / 4 minute read

Exactly How Long Does it Take to Build Credit?

Good credit will help for you to get car loan and mortgage approvals and help with better interest rates.
how long to build credit

If you're ready to start your financial future now, waiting to build credit can be frustrating. If you need a car loan or if you're ready to start applying for a mortgage, then having strong credit is a must. Not only will good credit help you gain approvals on your future loan requests, but it will also earn you better interest rates. Whether you have no credit or are rebuilding credit, you'll need to have patience and perseverance while keeping your eye on the prize: a solid credit score and a clean credit history.

Credit – especially good credit – isn't built overnight. So, how long does it take to build credit? Depending on your situation and existing history, building or rebuilding credit can require six months or longer before you see noticeable results in your credit report.

Want to get tips on how to help raise your credit score in 30 days. Download our 12 easy steps checklist here.

There Are Many Factors That Determine How Long It Takes to Build Credit

It's difficult to provide anyone with an exact estimate for the amount of time needed to build credit because a person's credit score is based on complicated algorithms that account for a variety of factors. Plus, no credit repository publicly discloses their formula. This makes it difficult to predict exactly how, when, how much, and in which direction a score will fluctuate as a result of a single action.

To answer the question, "How long does it take to build credit?" you'll need to consider the factors that determine a person's credit score and history. In general, the following factors most affect credit scores and the time it takes to build credit:

Starting Point

If you're just beginning and have no existing history, you'll see your credit score more strongly impacted by credit decisions than you will if you already have a long credit history.

If you're working on rebuilding your credit after making some financial missteps, don't expect to see your score shift too quickly. If you have a long history, a generally improved trend in your credit use will eventually move your score in the right direction as your good choices begin to outweigh your past mistakes.

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Payment History

A credit score's purpose is to help lenders determine the likelihood that you'll repay your loan as agreed (or if you'll forget payments, become severely past due, and generally turn into a credit problem). For this reason, your payment history is one of the most important factors in building credit.

Always making payments on time is essential to building credit. Late payments (30 days), even later payments (60 or 90 days), and credit accounts that are ultimately sent to collection agencies will put your credit score on a steep, downward spiral.

Credit Utilization

This factor refers to the total amount you owe or the amount of debt you carry. Credit utilization is a ratio calculated by dividing the total amount you owe by the total amount of credit available to you. For example, if you have one credit card with a $1,000 limit and owe $500, then your credit utilization ratio is 50%. When it comes to credit score, the lower the ratio, the better. Try to keep your credit card balances low and pay them off every month, instead of carrying a balance. (Bonus: Paying off your credit cards each month will help you avoid spending money on interest!)

Length of History

The length of your credit history also helps determine your credit score. The longer the history, the more data there is to work with, which means a longer credit history will strengthen your score. Once you've opened a credit card, do your best to keep it because the age of your accounts will work to your benefit, as the years pass.

If you're brand-new to credit, then this factor is against you. From a more optimistic perspective, you have the opportunity to build a long history of positive credit choices that show you're a responsible borrower and a safe choice who's worthy of the lowest interest rates available. After reading this article, you'll know how to be a responsible borrower and you can get started right away.

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Types of Credit Utilized

While only using credit cards or only having one installment loan isn't going to hurt your credit (unless you're late to pay), only utilizing a single type of credit account won't help your credit either. Having a diverse mix of installment loans and revolving credit will prove that you can borrow responsibly in a versatile environment, and you might get a few extra points tacked onto your score as a result.

Recent Credit

Opening too many new credit accounts in a short period of time can hurt your credit score and might seem like a red flag to a potential creditor. Keep this in mind whenever a store credit card tempts you with an enrollment discount. If you're hoping to buy a house in the near future, you might want to wait on getting a loan for a new boat or taking advantage of that 15% off until after you've signed your loan documents.

If You're New to the Game, Here's How to Start Building Credit

Most new borrowers are able to begin building credit by starting out with a credit card or even a car loan. As you build your credit, focus on the factors listed above, being especially careful not to overextend yourself and to repay as agreed.

Building a solid credit history depends more on developing good, general financial habits than doing any one thing right. You likely won't start building credit with a variety of new loans, so there's no need to worry about taking out loans just for the sake of getting a good mix. You can build credit the old-fashioned way by making responsible decisions, paying your credit cards off each month, and always making your payments on time.

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Rebuilding Credit Can Take Longer

It takes a while to establish credit when you're new to the financial game, but it can take even longer to rebuild credit following past financial blunders. Start by paying off any collection accounts you might have, bringing your past-due accounts current, and continuing to make payments on time.

Different financial institutions have different lending policies and underwriting guidelines. Some strictly go by FICO score, but others place more weight on credit history. For example, some lenders might not lend to potential borrowers whose scores fall below or a particular number. Some might only approve loans for those who've had no late payments or new collection accounts opened in the past 12 months even if they have a high credit score.

Making Your Payments Is Key to Building Credit

Whether you're new to borrowing or have a long history, building credit is an ongoing task. Regardless of your total financial picture, the best way to build and maintain credit is by always making payments on time.

How Can Your Local Credit Union or Bank Help?

If you're working on building or rebuilding credit, a lender at your local credit union or bank can provide you with plenty of guidance along the way. This might include helping you create a monthly budget or consolidating credit accounts to simplify repayment. Experts in credit history, a lender will be able to evaluate your financial history and provide you with specific ways to improve, so you can achieve your financial goals.

If you are looking for more tips relating to your initial question "how long does it take to build credit," review our "What You Need to Know About Building Credit and Second Chance Checking Guide".