To create a credit score from scratch, you must first use credit, for example, when opening and using a credit card or when paying off a loan. It will take approximately six months of credit activity to establish a sufficient history for a FICO credit rating, which is used in 90% of lending decisions. FICO credit ratings range from 300 to 850, and a score above 700 is considered a good credit score. Scores above 800 are considered excellent.
Creating a credit score from scratch can take anywhere from one month to two to six months, depending on the type of credit rating you're analyzing. The two main credit rating systems vary in how quickly they will show a rating. You can establish a VantageScore within one to two months after you have a line of credit. Your FICO score, the rating used in most credit decisions, takes at least six months to generate.
But one of the main factors that influence a good credit score is a long loan history. That means that no matter how hard you try if you're just starting or just starting to rebuild, it could take at least seven years before you start seeing the real results you're looking for. If you're really looking for good credit, keep that figure below 7%, according to credit expert John Ulezheimer of Credit Sesame. One of the main reasons is that credit rating models generally analyze your credit history over an extended period of time.
In a sad turn of fate, sometimes the biggest obstacle you'll face in building your credit history is actually getting credit. Regular use and full repayment are important, because your credit utilization ratio (the ratio of debt to available credit) is the second most important factor affecting your credit rating. Keep in mind that this will not affect your credit files with Equifax and TransUnion, the other two major credit bureaus. If your score is low because you don't have a lot of credit history or you're just starting your credit-building process, your score can increase in a matter of months.
If you've never had credit of any kind, there are several ways to start building a credit history. By making the effort to pay your outstanding balances, you will help use your credit, thus improving your credit score. For example, if you only use your credit card for emergencies, it may not appear that you are using the credit responsibly to a lender. Otherwise, there are rental credit reporting services, such as RentTrack and PayYourRent, that will process your rental payment and report it to the credit bureaus (for a fee, if the landlord is not registered).
Each month you pay your card bill on time will increase your credit score, so establish a routine and you can increase your creditworthiness quickly, as long as you can avoid losing a credit card payment. Keeping balances low relative to your total limits, especially for credit cards, is another crucial thing you can do to improve your credit score.