If you plan on buying a house in the future, it’s essential to establish a track record of past payments. This proves to mortgage lenders that you’ve repaid people (which means they’ll be more likely to loan you money for a home). But if you have no credit history—maybe because you’re young—how long does it take to build it from scratch? Here, Realtor.com answers questions about how to build a credit history, sometimes in as little as six months.
How long does it take to build credit?
At a minimum, you need to open at least one credit card in your name. Then you need to make a purchase using the card and 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). Once you’ve established credit, though, there’s still some work to do. Credit histories are scored based on performance. Healthy credit behavior—such as on-time payments and staying well below your credit limit—leads to a higher credit score. In addition, there are two types of scores: VantageScores and FICO scores. Some mortgage lenders may look at a VantageScore, but FHA lenders are required to use FICO scores. After opening your first credit account and beginning to make timely payments, it will take at least three months to generate a VantageScore and six months to have enough information to create a FICO score. The longer you demonstrate good credit behavior, the higher your score will climb. While a couple of on-time payments is nice, 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 percent of your credit score.
What credit score do you need to get a mortgage?
Your initial credit score when building credit typically will be in the 660s, which is considered on the low end of “fair” (fair scores range from 650 to 699). While that could be just enough to buy a house with some lenders, many vary regarding the minimum credit score they will accept. In addition, a “fair” score might enable you to obtain a mortgage, but it won’t qualify you for the best mortgage—in terms of interest rates and other deals. To get better mortgage rates, you will need a good score (700 to 759) or an excellent score (760 or higher). Unfortunately, achieving these scores will take more time.
How can you speed up the credit-building process?
Use your card reasonably to establish a payment history. Make payments on time (or early, if possible). Setting up automatic payments can help. Experts recommend keeping your balance below 30 percent of your credit limit, and ideally, paying it off in full each month. These simple steps will eventually push your score from fair to good to excellent, allowing you to get the best rates for your mortgage. 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 getting a secured credit card. That means it is “secured” by a deposit, which will be used to pay off the account if you default or stop paying. 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.
