Whether you have been hit with financial hardship or simply plan to enjoy advantages like better loan terms, you may want to improve your credit to an ideal range. However, this is easier said than done. Hence, it is important to know how long does it take to build credit.
Basically, once you learn about the behind-the-scenes processes, you can manage your expectations and keep your eyes on the prize. In this article, you will learn about how long does it take to build credit.
Also, you will learn the major factors that determine the time to build a strong credit score. Hence, to learn more, read on to the end of the article.
How Long Does it Take to Build Credit?
When you want to build credit, you must understand that it takes time. Also, it can vary a lot depending on your credit score. Apart from that, it also depends on your ability to manage your loans and other credit products.
Here are different situations of credit that determine how your credit score shall be:
1. If you are new to credit, you must start building your credit now. Then, it will take you three to four months to detect an update in your credit score.
2. Once you have a moderate credit score, you need around four months to reach a score of 700. However, you might need to spend a few months if you want to see a change.
3. If you want to build a good credit score (750+), you will need a longer time. This is especially true if you are new to credit.
How Long Does it Take to Build Credit? – Factors to Consider
To help you familiarize yourself with credit calculations, here’s how long it takes to build solid credit.
1. It Depends Upon Your Current Score
How long it takes your score to reach a good range depends upon its current status. For example, if you are starting from scratch, it may take about 3-6 months for you to see noticeable credit activity that could lead you to follow a smart path to build your credit history.
However, if your score is already in the “fair” range of 580-669 for the FICO® scoring model, you might reach the “good” range of 670-739 within 1-2 years with consistent positive activity.
2. Your Past Payments Matter
While calculating your credit score, your payment history has a major role to play. If you have missed any payments in the past, they stay on your record for typically 7 years.
With that being said, the initial effect of missing a payment hits your score hard, but it has less and less effect as time passes and you make timely payments.
3. Bankruptcy Can Impede Your Progress
If you have a bankruptcy on your record, it may take 7-10 years for your credit history to improve afterward. But this doesn’t mean that you should lose all hope. Even with bankruptcy, you can follow financial best practices like using a planning journal to slowly but surely enhance your score.
4. Collections Can Hold You Back
If you ever missed payments like rent, they could be sent to collections and stay on your credit report for up to 7 years. Depending upon the scoring model being used, this could affect your score by a significant margin. To make sure that you never miss such payments, you can use a money transfer app for more convenient transactions.
5. Past Credit Applications Can Be an Obstacle
When you apply for new credit, that activity can stay on your credit history for up to two years and affect your score for typically one year. To avoid this problem, refrain from applying for unnecessary new credit for up to two years. This includes the following steps for getting a small business loan.
6. Your Oldest Account’s Age Plays a Role
If your oldest credit account is more than 5 years old, it can significantly length the average age of your credit history. This could be beneficial for your score. This is one of the reasons why experts recommend that you don’t close your oldest account and try to maintain it instead.
7. New Accounts Can Influence the Average Age of Your Credit History
Similar to how your oldest account can lengthen the average age of your credit history, opening new accounts can lower it. Whether you are choosing good credit cards for students or finding lines of credit for business owners, you should be careful when opening new accounts.
8. Your Credit Mix Can Make a Difference
Building a good credit mix is one situation where opening a new credit account is more beneficial than it is disadvantageous. When you have at least one revolving credit account and one installment credit account in your name, it contributes to a good credit mix and improves your score.
9. How Much Credit You Utilize Can Have an Impact
While putting your money towards an investment platform is a good strategy, you must not neglect the credit utilization ratio of your overall credit accounts like credit cards. Maintaining a utilization ratio of less than 30% can help you improve your credit score over time.
Tips to Build a Credit Score
The following are a few tips with the help of which you can build a strong credit score for yourself:
- Be on time when it comes to debt repayments.
- Make sure your credit utilization ratio is around 30%.
- Regularly check your credit report.
- Do not make multiple loan applications within a short span of time.
- Ensure your old credit accounts are open.
- When you are applying for multiple credit options, make sure you have different types of credit.
When you keep these details in mind, you can have more confidence while walking down the challenging road of building a good credit score. This could help you pave the way towards a brighter future for yourself.
Build Your Credit Score Now
How long does it take to build credit? Now you know the answer to this question. In fact, the above points explain the factors that determine the time you need to build your credit score.
Hence, when you are building your credit score, you must consider the above factors. However, make sure to remain steady and not rush in the process.
Do you have more suggestions on how to build a credit score? Please share your ideas and opinions in the comments section below.
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