Editorial Policy

How Long Does It Take to Build a Credit History?

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By Eva Norlyk Smith, Ph.D.
September 23, 2009

Having a good credit history and score has long been an important factor in being able to obtain loans and credit cards; your credit score even factors in when you apply for a job or a rental place. In more recent times, as the economy is going through a recessionary period, having good credit has become more important than ever.

While Americans for the past two decades have enjoyed easy access to credit in general and credit cards in particular, the future for obtaining credit does not look as bright. Lenders, credit card issuers and other types of companies that extend credit to consumers are tightening guidelines for approval, making it harder to obtain credit. This is true for those who have low credit scores, but people who do not have a credit history at all find it just as difficult to get any form of financing.

This is why it’s important to take steps early on to establish a credit history and start building a great credit score. But that can be a Catch-22. You have to have credit to build credit. Without a credit history, lenders will be more reluctant to extend credit to you; unfortunately, without having some types of credit in your name, you can’t begin to establish a credit history.

The good news is that it is easier than ever before to establish a credit history. There are two main reasons for this. Firstly, because all information regarding your credit transactions are processed electronically nowadays, it doesn’t take as long to establish a credit history. While in the past, building credit could be a year-long process, nowadays, you can create enough of a credit trail to get a credit history and credit score in as little as six months.

The other factor that makes building credit easier than before is the ready availability of credit cards. Even though lending rules have tightened, credit cards remain one of the easiest types of credit to obtain, making them one of the best ways to give your credit history a jumpstart.

To build a credit history with a high credit score in the shortest time possible, follow these three simple steps:

1. Get credit. You can apply for a credit card online, however, if you’re just starting out, it may be easier for you to obtain a credit card through a bank with which you already have an account established. Many banks, both local and national, issue their own credit card; if this is the case for your bank, it’s a good place to start. If you are young, applying for a student credit card is another easy way to go, although you will need a cosigner if you’re under 18 (or under 21, once the new credit card rules step into effect in February 2010).

2. Manage credit. Once you have obtained a credit card, it’s important to use it responsibly. Charging manageable amounts, making your payments on time and paying off credit card balances instead of letting them accumulate are three of the key actions you need to take to show that you can manage credit. This in turn will help you build and maintain a good credit history.

3. Expand credit. Your credit score thrives on having various types of credit, so over time, apply for different types of credit—student loans, auto loans, mortgages, etc. Diversifying the type of credit you manage helps to build a credit history and improve your credit score. At the same time, however, don’t go deep into debt, have a mix of 2 to 3 different types of credit, but keep balances low.

These three steps together make up about 90% of your credit score. The fourth factor that comes into play is the length of your credit relationships, so the earlier you start building a credit history, the better. As the recession continues, lenders and creditors may continue to tighten lending criteria and make it harder to obtain credit, so if you haven’t already started building credit, now is a good time to start.