How long does it take to build credit history? If you plan to buy a house, establishing a track record of past payments is essential, because it proves to mortgage lenders that you’ve paid people back, which means they’ll be more apt to loan you money for a home.
Still, if you have no credit history, because you’re young or just never bothered, how long does it take to build it from scratch?
Done properly, it can take as little as six months. Done wrong? It can take several years. So if you would like to establish credit to buy a home, you’ll want to know the right way to go about it!
How long does it take to build credit?
At a minimum, you need to open at least one credit card in your name. From there, you just need to make a purchase using the card, and then make a payment. Once you’ve made your payment, your creditor will report your payment to one or more of the major credit bureaus (TransUnion, Equifax, and Experian).
Typically, it takes at least three to six months of activity before a credit score can be calculated.
Once you’ve established credit, you still have some work to do. Credit histories are scored based on performance, much like the grades you got in school. Healthy credit behavior—like on-time payments and staying well below your credit limit—lead to a higher credit score.
After opening your first credit account and beginning to make timely payments, it will take at least six months to have enough information to create a FICO score.
And the longer you demonstrate good credit behavior, the higher your score can climb from there. In other words, a couple of on-time payments is nice, but years and years of on-time payments is far more impressive, and reflected in your score accordingly. In fact, the length of your credit history can count for as much as 15% of your credit score.
What credit score do you need to get a mortgage?
Your initial credit score when building credit will typically be in the 660s, which is considered fair, though sufficient to obtain a mortgage through most lenders. As long as you’re above a 600 score, there are several programs available to provide financing for your home purchase.
How to speed up the credit-building process
To establish a payment history, use your card reasonably. Make payments on time (or early, if possible). Setting up automatic payments can help. Keep your balance below 30% of your credit limit and, ideally, below 10% for the best possible score. These simple steps will eventually push your score from fair to good to excellent!
Here are some other ways to speed up the credit-building process and ensure your credit history and score get off to a good start.
Become an authorized user on someone else’s account. This can be a parent, friend, or relative who has had the account for at least a few years and has a good payment history. You don’t need to use the account or even have a card. Once you’re added as an authorized user and that fact is reported to the credit bureaus, it will instantly affect your credit and may generate a score if you don’t already have one or, at least, give it a boost.
Get a secured credit card or loan. If you’re having trouble qualifying for a traditional credit card, try for a secured credit card, which is “secured” by a deposit. This means that if you default or stop paying, your deposit will be used to pay off the account. This lowers the risk involved for the lender, which makes it more likely to offer you credit even if you don’t have an established credit history.
Also know that when it comes to mortgages, your credit score is just one piece of a larger puzzle. Your lender will also look at your employment history, how long you’ve lived at your current residence, and your credit references.
Ready to get your home search started? Click here or give us a call at (281)912-5582 to get pre-approved for your home loan today!