The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Building a good credit score takes time, when building your credit from scratch, you can typically expect to see a score within six months. If you’re working to rebuild your credit after financial setbacks that resulted in a drop in your credit score, repairing your credit comes down to ensuring you’re being financially responsible from here on out.
Establishing a good credit score doesn’t happen overnight, and sometimes it can feel impossible to recover from financial setbacks. There’s no solid timeline for building good credit, but it’s important to understand how your credit score is calculated so you know what actions you can take to get your credit in good standing. Read on to find out how long it takes to build good credit, as well as tips on maintaining and building your credit score.
How long does it take to get a credit score?
Building up your credit score starts with the basics—using credit. Opening a credit card or becoming an authorized user are two ways to start building your credit from the ground up. Many people think that you start with a credit score of zero and have to work your way up, but you’ll typically start with a score around 500 to 700, depending on the health of your credit history thus far.
As mentioned, it can take up to six months to build enough credit history to obtain a credit score. Credit scores range from 300 to 850, with a score over 670 being considered a good credit score.
While establishing a score can take up to six months, working your way up to an excellent credit score can take much longer. Your credit score will typically update every 30 to 45 days, and building good credit will take years of consistent and responsible credit use.
How are credit scores calculated?
The credit score you receive is calculated based on your borrowing history. There are five main factors that determine your credit score. These factors include:
- Payment history (35 percent)
- Credit utilization (30 percent)
- Length of credit history (15 percent)
- Different types of credit (10 percent)
- New credit (10 percent)
Since the length of time you’ve been building your credit plays a role in your credit score, building it up to an excellent score can take some patience.
How to increase your credit score now
If you’re new to credit and just beginning to build your credit history, applying for a credit card is a quick way to start building your credit score. Your information is reported to the credit bureaus every 30 days, so it’s an easy way to start building credit quickly.
Besides getting a credit card, make sure you’re making your payments on time every month, since your payment history is worth 35 percent of your credit score. Make at least the minimum payment on time each month and your healthy payment history will be reported to the credit bureaus monthly. This healthy history can help you increase your credit score over time.
Lastly, reducing your available amount of credit can play a significant role in increasing your credit score. If you’re able, increasing your credit limit or paying down your debts in lump sums can help free up some of your available credit. Remember, credit utilization accounts for 30 percent of your credit score—keeping your credit utilization ratio as low as possible is key to improving your credit score.
What to avoid when building your credit score
Unfortunately, when it comes to credit, one financial mishap could end up costing you—sometimes taking years to recover from. To maintain an upward trend of positive credit history, you’ll want to avoid these common mistakes:
Since your payment history accounts for 35 percent of your credit score, missing even one payment can be detrimental, as it can stay on your credit report for up to seven years. Late payments are usually reported 30 days after their due date.
Applying for multiple credit cards or loans
When applying for a credit card or loan, creditors run a hard inquiry to assess credit history and determine the trustworthiness of a borrower. One hard inquiry doesn’t have much of an impact on your credit score and may only drop it by five points. However, having multiple hard inquiries in a short amount of time can hurt your credit score and make you seem like a risky borrower to lenders.
Defaulting on a loan
Defaulting on a loan occurs when you’ve failed to make payments for a consecutive period of time. Your credit score drops every 30 days that you’ve missed a payment, and failure to pay can have an extreme impact on your credit score. If too much time passes, lenders can contact the credit bureaus, resulting in a credit score drop.
If you continue to fail to make a payment on a loan your account could be sent to collections by the loan issuers, where legal action can take place. Depending on the type of loan you have, lenders may try to garnish your wages or take your assets.
Using too much available credit
Your credit utilization accounts for 30 percent of your credit score, making it one of the most important factors contributing to your score. If you use too much of your available credit, your credit score can take a serious hit. For example, if your credit limit is $4,000 and your current balance is $3,000, that puts your credit utilization at 75 percent, which is significantly higher than recommended.
Additional tips for building and maintaining a good credit score
Now that you have a solid understanding of what can hurt your credit score, let’s take a look at how you can increase and improve your credit score.
Open a secured credit card account
Secured credit cards are best for individuals who have no credit or have a low credit score, and they work to help borrowers build or repair their credit. Unlike traditional credit cards, secured cards require the borrower to put down a cash deposit, which can be used to settle any unpaid debt should the issue arise.
In most cases, the amount you put down will be equal to your available credit amount. For example, to get a credit limit of $1,000, you’ll typically need a deposit of $1,000. Credit limits for these cards are traditionally lower than unsecured credit cards and have higher interest rates.
If you’re working on building your credit from the ground up or repairing your bad credit, a secured credit card can be a good option to help build your creditworthiness. Once you’ve built up your credit and have remained a responsible borrower, you can move your way up to an unsecured credit card.
Become an authorized user
If you’re just starting to build your credit, you may not be approved for a traditional credit card just yet. In this case, becoming an authorized user on someone else’s credit card is an easy way to start building your credit history.
As an authorized user, you’ll have access to a credit card and can use it as such, but the primary holder of the account will be legally responsible for the debt. This option is best for those building their credit history from scratch, but it shouldn’t be used as a long-term option.
Apply for a credit builder loan
A credit builder loan is an option for those with no or low credit history looking for a low-risk way to build their credit. Unlike a personal loan, a credit builder loan essentially works backwards—the lender puts your approved loan amount into a savings account, you repay the loan over time and once the loan is paid off, the lender releases the funds to you. This allows you to build a solid payment history, thus increasing your credit score over time.
Keep balances low
Experts suggest that your credit utilization ratio should always be below 30 percent to maintain a positive credit score. If you can, consider paying more than the minimum payment each month to ensure your credit utilization ratio stays as low as possible. So long as you’re paying off high balances before the next reporting period, your credit score should not be negatively impacted.
Pay credit card bills on time
Since payment history is the leading factor in your credit score, it’s important to be on top of your monthly payments. If needed, set up an automatic payment system so you never have to worry about making your payments on time each month.
Don’t close unused credit cards
If you’re not using a credit card, keeping the account open won’t hurt your credit score, but closing the account can. The length of your credit history impacts your credit score, so keeping any accounts open can help build your credit history and increase your total available credit, boosting your score over time.
Monitor your credit report
If you’ve been a responsible borrower and see sudden drops in your credit score, check your credit report and look for any discrepancies. If there are errors on your report, dispute the errors immediately to get them removed. The longer those errors stay on your report, the more damage they can do to your credit score.
Building credit takes time, and getting your credit score in good standing takes years of consistent and responsible credit management. Make sure you understand the ins and outs of credit score ranges, and follow the tips in this article to help build and maintain good credit.
Reviewed by Miriam Allred, an Associate Attorney at Lexington Law Firm. Written by Lexington Law Firm.
Miriam Allred was born and raised in Southern California. After high school she joined the US Navy. She then went on to get an Economics degree from Chapman University where she got to enjoy an internship at the United States Supreme Court. Miriam then went to Brigham Young University where she received her Juris Doctor. Prior to joining Lexington Law, Miriam worked as a civil rights attorney dealing with discrimination and sexual harassment. In this role she helped write and create policies and investigate sexual harassment and discrimination complaints. Miriam also has experience in family law. Miriam is licensed to practice in Utah.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?
While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.
Users Who Are Authorized
An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.
If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.
Joint Credit Cards Have an Impact on Your Credit Score
Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.
Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.
While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.
Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.
Should you pay down debt or save for retirement?
While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.
Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.
If you have high-interest debt, pay it down
When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).
In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.
High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.
To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.
If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.
Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.
If you’re nearing retirement, start to save
The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).
Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.
Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.
Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.
Aim for both goals by improving income
As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.
The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.
If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.
For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.
While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).
How does a loan default affect my credit?
Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.
Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.
30 days late
Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.
The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.
More than 30 days late
Payments that are more than 30 days past due can trigger increasingly serious consequences:
- The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
- You may receive phone calls and letters from creditors demanding payment.
- If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.
Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.
Other ways a default can hurt you
Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:
- If you default on a car loan, the creditor can repossess your car.
- If you default on a mortgage, you could be forced to foreclose on your home.
- In some cases, you could be sued for payment and have a court judgment entered against you.
- You could face bankruptcy.
Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.
How to avoid a loan default
Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:
- For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
- For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.
Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.
Clean up your credit
The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.
Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.
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