How long does it take to build credit from scratch?
Building credit from scratch can feel like a Catch-22: You need a credit card or loan to start building up your credit scores, but you need good credit scores to get approved for credit cards and loans.
So where do you start?
As a financial educator and former NFCC-certified credit counselor, I've helped thousands of people answer this question. Believe it or not, there are simple steps that anyone can follow to build credit from scratch.
Of course, you probably won’t achieve good credit overnight, but if you follow a few tips, you can speed up the process of gaining points. Here's everything you need to know.
How long does it take to build credit?
If you don't have a credit score yet, it will likely take you at least six months to get your first credit score generated. According to FICO, the company that invented credit scores, you need both of the following in order to get your first score:
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At least one debt account that's been open for a minimum of six months
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At least one debt account that's been reported to the credit bureaus for the last six months
In other words, you only need to open one credit card or loan to get started with building credit. Then, after you open an account, there are other things you can do to make sure your scores keep growing. For example, making your debt payments on time and paying off your credit cards each month will help you maximize your scores.
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How to build credit from scratch
People often ask me what the fastest and easiest way is to build credit. After spending over a decade studying FICO scores, reviewing credit reports, and teaching workshops on credit scores, I can tell you that it takes years or even decades to achieve the perfect 850 credit score. However, there are tricks that anyone can use to make serious progress within a few months.
Whether you have no credit at all or you're looking for ways to improve your bad credit, here's what you can do.
1. Become an authorized user
An authorized user is a person who is authorized to use a credit card, but is not the primary cardholder for the account. If you're looking to build or improve your credit, becoming an authorized user is hands down the easiest approach.
Being an authorized user on another person’s card allows you to have that card’s positive payment history listed on your credit reports — and you don’t have to actually use the card yourself. You also aren’t responsible for making the payments, though keep in mind that if the primary cardholder fails to pay their bill on time, it could hurt your credit, too.
Here's how this strategy works:
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Find a loved one who has good credit. Let them know that you're working on building your credit scores and ask if they might be willing to help you out.
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Ask your loved one to add you to one or more of their credit cards as an authorized user. I recommend letting them know that you don't need your own copy of the card and you won't be using the account.
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Have your loved one contact their creditors to add your name as an authorized user. This can be done online or over the phone, and the primary cardholder may only need to provide your legal name and age.
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Once you're added as an authorized user, all of the details for the account will show up on your credit reports and will be used to calculate your credit scores.
I personally used this trick when I was starting to build my own credit, and it helped me a lot more than I expected. As a result of becoming an authorized user, my length of credit history (which is one of the major factors used to calculate credit scores) jumped from zero years to 11 years. Over the course of the following year, I was able to open my own credit card, and I saw my scores increase by around 60 points.
2. Open a secured credit card
Unlike regular credit cards, you don't need good credit to qualify for a secured credit card. Instead, you qualify by making an up-front deposit. The limit on the card is usually equal to the amount you deposit, which can be anywhere from $50 to $5,000.
If you don't have someone who can add you to their credit card as an authorized user, this is the next option I recommend trying. But keep in mind that some secured credit cards will help your credit more than others. Here's what to look for so you can get the most out of a secured credit card:
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High limits: The higher your limit is, the higher your credit scores will be (as long as you keep your balance low), so look for the card with the highest deposit you can comfortably afford.
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Credit reporting: Find a creditor who reports account information to all three credit bureaus (Equifax, Experian, and TransUnion). This will ensure that all of the different versions of your credit score (yes, you'll eventually have multiple scores) are positively impacted by the card.
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Graduation option: Choose a secured credit card that "graduates" to an unsecured card after a set number of payments. This will allow you to get your deposit back without having to close the account. Keeping it open will help you build a longer credit history.
3. Take out a credit-builder loan
A credit-builder loan is like a loan in reverse. Instead of receiving the loan funds up front and then paying it off, you make monthly payments for a set period (anywhere from six to 24 months), which are held in a savings account. Once you’re done making payments, you receive the funds, plus any accrued interest.
Since the lender doesn't have any risk of losing their money, they won't need to review your credit to determine if you qualify. But each of your monthly payments will be reported to the credit bureaus, helping you build your scores.
Credit-builder loans are typically offered by credit unions. You can use the National Credit Union Administration's Credit Union Locator to get started with finding options in your area.
Read more: 7 credit unions anyone can join
4. Join a lending circle
A lending circle is a grassroots approach to building credit. With lending circles, you join a small group of people who each make a monthly payment into a community pot. Then, each person has an assigned month when they receive all of the money in the pot.
For example, if you're in a group of 12 people and each of you contributes $100 a month over the course of a year, there will be one month when you receive $1,200.
To ensure that your lending circle will help your credit, make sure to look for a financial institution or nonprofit agency that reports lending circle payments to the credit bureaus. The results will vary, but according to Mission Asset Fund (MAF), a Bay Area nonprofit that organizes lending circles, participants see an average increase of 168 points in their credit scores.
Read more: Can you raise your credit score by 100 points overnight?
5. Carefully consider a store credit card
Finally, you might try applying for a store credit card, also known as a retail card. These are credit cards you can only use at specific stores or gas stations.
Why is this the last option I recommend? Although store cards can be easy to qualify for, they have several major downsides. According to a report from the Consumer Financial Protection Bureau (CFPB), 90% of retail credit cards come with interest rates above 30%. Plus, they're designed to encourage spending.
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