How long does it take to build credit?
It usually takes about six months to generate a credit score. But while it doesn’t take long to build a good credit score, it takes even less time to damage your credit. If you’re just now beginning to establish credit, continue to make timely payments on your student loans, and/or look to someone in your life with a strong credit score to become an “authorized user” on one of their credit cards.
If you’ve made your way to this article, you likely find yourself in one of two positions. The first: you’ve been doing a good job building credit but in the not-so-distant future you intend to make some big purchases. And that means you’ll need to boost your credit score a bit. The second: you’re hoping to break into the world of spending money you don’t have (responsibly of course), and are looking for the most effective ways to do so.
More importantly, you’re probably wondering, “how long does it take to build credit?” Regardless of which group you fall in, we’ve assembled all the tips and tricks you need to turn that 670 into a 760 in record time. Or if you’re just getting started, don’t fret. There are plenty of ways to start building credit responsibly…and efficiently.
How long does it take to build credit?
The short answer is this: it usually takes about six months to generate a credit score. The long answer is this: It doesn’t take long to build a good credit score, but it takes even less time to damage your credit. With that being said, let’s start with a glass-half-full approach.
Who’s FICO?
FICO, short for Fair Isaac Corporation, is the most prominent method for determining one’s credit score. According to the good people at FICO, scores are generated based on an individual’s “credit history”, which is why it often takes six months of timely payments in order to render a reported score. It’s also one of the few times that philosophy and personal finance coexist in perfect harmony: today’s decisions become tomorrow’s history… in this case, your credit history.
The equivalent of your very own history book
So make sure you’re very intentional about your present actions and equally deliberate about your future plans, otherwise, you’ll end up with a chapter in your personal finance history book that’s bleaker than a seminar on the bubonic plague in Europe. Fear not though, your credit score doesn’t have to look like a ring around the rosie or a pocket full of posie. And it won’t…as long as you adhere to the following pieces of advice.
Establishing credit with no credit history
Do Student Loans Affect Credit Scores?
If you’re already paying down student loans, keep up the good work. You’ve begun the journey of building credit. As long as those accounts remain open while the balances due steadily decrease over time, you will see a positive shift in your credit score. Student loans function similarly to credit cards: you’ve borrowed money in order to make a purchase, and as long as you make consistent payments within the agreed terms, your credit score will be marked by a happy green color.
Becoming an authorized user
Your student loan payments might not move the needle like you want them to. In order to really start boosting that credit score, you’ll need to diversify the types of credit you hold and increase the amount of credit available to you. And this is where a credit card will help. But more on that later.
If you’re worried about falling into the infamous trap of credit card debt - whether that’s due to naivete or immature financial decisions - we’re here to help. By the end of this article, you’ll be far from naive when it comes to credit cards. And if your concern is that you might become your own worst enemy, guess what? There’s a solution for that too. Did you know that you can use a credit card to build credit…without having a credit card? Yep, it’s called being an “authorized user”.
Ask someone who’s got their financial sh*t together
If you have a friend or family member with a killer credit score (we’re talking high 700s or anything in the 800s), ask them to make you an authorized user on their credit card. As long as they know how to use a credit card like an adult, doing so will let you benefit from their lengthy credit history while also diversifying the types of credit that are listed in your report. You don’t even have to use the card if you (or they) don’t want to. You’re just along for the ride!
Like Thomas Edison taking credit for Nikola Tesla’s work, or if you want a less parasitic example, Robin riding Batman’s coattails (or cape-tails) to fame. Pretty soon you’ll be able to upgrade those silly boots and fabric mask for a bulletproof suit and some weapons that are sure to do damage.
A Financial Utility Belt
And the best part? In true Batman fashion, these weapons can be subtly concealed… in the confines of your wallet. But once you’ve unlocked such heavy firepower, you’re gonna need to know how to use them. Lucky for you, we’re like the Tony Stark of personal finance. We could build a 780 credit score in a cave - with a box of scraps - and we know all there is to know about hacking the best credit-building weapon in the game: credit cards.
Hacks to increase credit score
When Should You Pay Your Credit Card Bill?
We're taught to pay off our credit cards each time the bill comes due at the end of the month. And most people think this is the only option. But believe it or not, you can (and should!) pay down your credit card debt more frequently. Paying it off in between months before you even receive a bill can do wonders for your credit score. Opting to make payments every two weeks, or even every week, lowers your Credit Utilization Ratio.
What is the Credit Utilization Ratio?
Great question. The CUR is calculated by the amount of revolving credit you're using divided by the total credit available to you. If that number is low, you’re signaling to creditors that you can use credit responsibly without relying too heavily on it. This has a direct impact on your credit score. For more credit card tips and tricks, check out this article on Credit Card Myths.
Lower Your Credit Card Usage
Another good way to decrease your Credit Utilization Ratio is by charging less to your card. You might be thinking, “Yeah no sh*t”, but you’d be surprised how many people struggle with this. A good rule of thumb is to keep your CUR below 30%. So if you find yourself charging $500 to a credit card with a $1,000 limit each month, it might be a good idea to reel that back a bit. Decreasing usage by charging no more than $300 to the same card before paying it back is a relatively quick way to boost your credit score. If you’re struggling to keep your Credit Utilization Ratio below 30%, check out this article on How to Be Smarter With Your Credit Card.
Increase Available Credit
On the flip side, you can also improve your Credit Utilization Ratio by increasing the amount of credit available to you. There are a few ways to go about this. You can request a high credit limit with your current card provider or wait for an automatic credit limit increase. You can also apply for a brand-new credit card. Each of these methods will increase the amount of credit available to you, thereby decreasing your Credit Utilization Ratio and indirectly increasing your credit score.
Debt Consolidation Loans for Bad Credit
If you’ve gotten yourself into some trouble and suddenly find that your credit history looks like a chapter on the French Revolution, don’t panic. For those of you who have a high balance (or balances) looming over you, there are effective ways to take some weight off your shoulders - and unlike the French Revolution, these ways don’t involve the removal of your head. This metaphorical guillotine goes by the name of “debt consolidation”.
If you’re balancing debt from multiple cards, you can apply for a debt consolidation loan from a bank. Such loans often come with much lower interest rates, so you can choose a personal loan amount that is equivalent to your outstanding balances, and continue on your merry way without high interest looming over your (still intact) head. We don’t want you to become a modern-day Marie Antoinette of MasterCards…so please, give this article a read: How to Avoid Credit Card Debt - and What to Do If You Haven’t.
Build credit like a boss
Well, there you have it. After reading this article, you should be one step closer to a credit score that would give Warren Buffet a run for his billions. As the debt-ridden main character played by Adam Sandler ironically said in Uncut Gems, “This is how we win.” One last thing before you get out there and start winning: be sure to peruse our Ultimate Guide on Debt Management. It’s worth the read, and there are even a few gems in there (get it?) We hope you found this blog helpful, but if you’re still worried about what will be written in the history books of your financial life, we’re here to help! Sometimes a financial advisor just hits different. Book a call with us today and discover (no, not the card) how you can take the guesswork out of living your best life.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.
