If you ever plan to buy a house, establishing a track record of past payments is essential, because it proves to mortgage lenders that you’ve paid people back. Which means they’ll be more apt to loan you money for a home.
Still, if you have no credit history, because you’re young or just never bothered, how long does it take to build it from scratch?
Done right, it can take as little as six months. Done wrong? It can take several years. So if you’re in a rush to establish credit to buy a home, you’ll want to know the right way to go about it.
How Long Does It Take To Build Credit?
At a minimum, you need to open at least one credit card in your name. From there, you just need to make a purchase using the card, and then make a payment. Once you’ve made your payment, your creditor will report your payment to one or more of the major credit bureaus.
Typically, it takes at least three to six months of activity before credit scores can be calculated. Once you have established credit, you still have some work to do. Credit histories are scored based on performance, much like the grade you got in school. Healthy credit behavior- like on-time payments and staying well below your credit limit – lead to a higher credit score.
What Credit Score Do You Need To Get A Mortgage?
Your initial credit score when building credit will typically be in the 660s, which is considered on the low end of “fair.” It could be just enough to buy a house with some lenders, but not all, because lenders vary regarding the minimum credit score they will accept.
You should also know that while a “fair” score may get you a mortgage, it won’t qualify you for the best mortgage 0 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 score will take more time.
How to Speed Up the Credit-Building Process
To establish a payment history, use your card reasonably. Make payments on time and early if possible. Setting up automatic payments can help. We recommend keeping your balance below 30% 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.
Become an authorized user on someone else’s account. This can be for 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 the fact is reported to the credit bureaus, it will instantly affect your credit an 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 for a secured credit card, which is “secured” by a deposit. This means that if you default or stop paying, you deposit will be used to pay off the account. 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.
Also, know that when it comes to mortgage, your credit score is just one piece of a larger puzzle. Your lender will also look at your employment history, how long you’ve lived at your current residence, and your credit references.
