Definitive Guide to Building Credit: How to Do it and How Long It Takes

Written by: Kristyn Pilgrim
Updated: 4/15/20

In order to buy a car, a house, or even rent an apartment, you will need to have some established credit. The better your credit score, the more options you have and the better your terms and interest rates on loans will be. 

If you are a college student, odds are that you don’t have much, or any, credit yet. Fortunately, there are some things you can do to build up your credit in as little as a few months. 

Understanding Credit Scores

Your FICO credit score is what most financial institutions will use to decide if you are creditworthy and what type of loan, and at what rate, they will offer you.

Your score will be calculated based on certain factors:

  • Payment history is worth 35%
  • The amount you owe is worth 30%
  • Your credit history length is worth 15%
  • The type of credit you hold is worth 10%
  • Your new credit is worth 10%

Credit scores come in set ranges, including:

  • Poor, which is under 579
  • Fair, which is between 580 and 669
  • Good, which is between 670 and 739
  • Very good, which is between 740 and 799
  • Exceptional, which is between 800 and 850

Building Credit

When you are first starting out, you won’t have much credit because you don’t have things that can contribute to your overall credit score. To take out loans and get good interest rates and favorable terms and conditions, you will need at least a good to very good credit score. This requires you to build up some credit.

Here are some ways to build credit:

  1. Take out a student or installment loan. You may already have a student loan if you are a college student. Making payments on these low-interest loans can help you to build credit.

    Installment loans, which also include car loans and personal loans, offer you a fixed amount of money that you will make monthly payments on over a certain amount of time. Installment loans can build up your credit file by adding variable types of credit to your report.
  2. Obtain a student credit card. Student credit cards often offer college students the option of getting a card without needing a credit score. If you make purchases that you can pay off each month, and make those payments on time and in full, you can build up your credit history quickly. 

    Credit card issuers report positive (or negative) payment histories to the major credit bureaus regularly. Keep your debt below 30% to keep your credit utilization ratio in the healthy range.
  3. Consider a secured credit card. Secured credit cards require an initial down payment, but it is usually refundable after you establish some credit. You can get one of these cards with no credit, or even potentially with bad credit, to boost your credit score through repeated on-time and regular payments.
  4. Become an authorized user on a parent’s or spouse’s credit card. This allows you to make purchases on their account without being responsible for the payments. You can use this to build up your credit. It will not build credit as fast as obtaining your own credit card would, and it will require someone to really trust you with their account.
  5. Take out a credit builder loan. This is a form of a secured personal installment loan that is usually offered by credit unions and small banks. You will take out the loan, but they will keep the money in an account. 

    You will make monthly payments, and after you pay it off, you get the money. This works to build your credit and improve bad credit, and it also helps you save money for big purchases.
  6. Pay your bills on time every month. This is the easiest and fastest way to build your credit. Come up with a budget and only borrow as much as you need and can afford to pay back.
  7. Keep your debt manageable. It can be easy to fall into a cycle of debt; $40,000 is the average amount of personal debt held by Americans. One credit card is a great way to build credit, but that doesn’t mean you need five credit cards. The more loans you take out, the harder it is to keep up with your payments.
  8. Ask your landlord or property management company to report your rental payments. Not all landlords will do this, but it can’t hurt to ask and see if you can get your rental payments to count toward your credit too. Rent is often one of your biggest expenses each month. If you can get a positive payment history reported to the credit bureaus, you can build your credit faster.

How Long Does It Take to Build Credit?

The short answer is that it really depends, but you can build up enough credit to have a credit file in about six months. It takes several months of on-time regular monthly payments to develop a credit history. Of course, you won’t build a very high credit score that quickly, but it’s a start. 
It takes time to build your credit score up to excellent status. Be patient and stick with it.

You will need a diversified credit file with an established good credit history, a positive repayment period, and a healthy credit utilization ratio to get the best credit score possible.