How long does it take to build credit?
The ring has been purchased, you have already decided you are going to name your dog “spot”, and you have begun looking at white picket fences for your new yard in the suburbs. So the next thing of course is getting a mortgage for that new house that you have an accepted offer on. Like most people you only have, say, 20% for the down payment, so you go to the mortgage broker for the rest. The first thing he asks is do you have good credit? You say, well I haven’t missed an electric bill in a few years and I always pay my gym membership on time, so it’s great!
Unfortunately for you, the broker says your credit isn’t necessarily bad, but it is pretty nonexistent, so it’s going to take some time before you can buy that house. “Nonexistent huh, well how long does it to build credit?”
In the case of a mortgage it may take a long time, usually 5-10 years or more. However, to establish, decent, reputable credit it should only take a few years at most, although this has become more difficult, as financial institutions and other types of lenders, have become more stringent in their credit extension policies.
The first and easiest thing for most people to do is get a secured credit card. Basically you will have to put a small sum of money down as collateral, as then you can begin borrowing up to that amount each month. But, make sure you use the card, because if you leave the balance at 0 you will be in the same spot that you started. One easy way to make sure you use the card is dedicate it to an expense that you incur each month, such as your gas. This will be a constant $1-200 charge each month, which you already know you can pay off.
The next goal should be to pay on time each month, and only apply for one card. Your credit score reflects the number of cards you have, and it can be detrimental to have more than one in the early stages of life when you are trying to build your credit. A year or so should give you enough time to get a regular credit card, with no minimum cash collateral requirement, which will speed up the process of raising your credit score exponentially.
The next step might be a small loan like a car loan, or even a school loan, as these are much easier to get accepted for than a mortgage. And again, follow the golden rule of paying on time! If possible, and your are comfortable, try and sign without a co-signor, but again make sure you are able to meet the obligation.
So there you have it, a few simple ways to get in the road to having a credit score, and a good one at that, assuming you are responsible. Good luck and spend wisely!