How quickly can I build credit from nothing?

Anonymous · ‎01-31-2015

I'm 23 and have no credit. When I was younger, I decided to be responsible by avoiding student loans and credit cards, and to pay everything in cash or out of my checking account. I guess I thought that would count for something later. Now I'm thinking about buying a house in the relatively near future, and I have no credit whatsoever, which is apparently worse than having bad credit.

So, starting from nothing, how quickly can I establish a "respectable" credit score? I've just gotten a secured card with a $200 limit. But is it realistic to hope to buy a house within a year or two without an obscene interest rate on the loan? Is there anything else I should be doing as well? I'm new to all of this, so any advice on what to do or expect is appreciated.

Anonymous · ‎01-31-2015

The good news is you can get a very respectable credit score in less than a year. It takes 6 months of reported credit history to get a FICO score. Bear in mind this takes longer than 6 months (usually 7 or a little over) because your 6th report has to cut (this is usually the 6th statement cutting). I would suggest waiting closer to 2 years before getting a mortgage. To maximize your credit score, you will want to add 2 or so additional unsecured credit cards around 7-8 months once you have a credit score. Adding a small installment loan with a term of 2 or so years would also be useful (even a low $1000 or less loan is fine). Adding these 3 additional accounts will improve your overall credit mix and add additional TLs to your account.

In a little over a year and a half from now all the inquiries for the additional lines of credit will stop impacting your score. You will also have about 1.5 years of established credit history. That is when you should look for a mortgage.

Few things to note:

1. A small installment loan improves your credit mix. I usually don't recommend people take loans and pay interest to boost credit scores, but for someone considering a mortgage it makes sense. A small interest payment now can save you a lot down the road. The additional installment loan will boost your score and thicken your credit file making your mortgage prospects better. Get the smallest installment loan possible with a 2+ year term so it does not get paid off before the mortgage. If you need a car or something like that, a car loan is generally an installment loan.

2. Don't pay any CC interest. Let a CC balance report in the month or so before you apply for any new loans. Only let one card report a balance and keep it under 10% but above 0%. For any month you are not looking for credit, don't worry about this. Managing utilization can add points to your score. Don't ever pay interest on CC balances, however.

3. Keep your credit profile free of any HPs within 13 months of your mortgage. Having no inquiries will help you come mortgage time. You can't do this if you want a mortgage in a year since you must add a few additional TLs to your credit report in 6 months or so to thicken your credit file.

Good luck!

racer-x · ‎01-31-2015

My daughter, after I made her AU on 2 cards worth $20k in CL's, and co-signing for a small Sallie Mae school loan, she has a TU 707 already.

It doesn't even seem like it took 6 months for her to get a score.

Anonymous · ‎01-31-2015

@racer-x wrote:
My daughter, after I made her AU on 2 cards worth $20k in CL's, and co-signing for a small Sallie Mae school loan, she has a TU 707 already.

It doesn't even seem like it took 6 months for her to get a score.

With the right AU card you can get a score in less than 6 months. You need 6 months of reported credit history. If the AU card has over 6 months of reported history, you just have to wait till it is added to the persons CR. Reported history before the AU added date can quicken this process.

racer-x · ‎01-31-2015

Random - AMEX BCP and CHASE CSP are the two accts I AU'd her on.

HiLine · ‎01-31-2015

I got 700 in a year, 750 in 2 years, and 790 in 3 years. You'll be fine. Check out my financial journey if you're curious about how I got there.

---> HiLine's personal finance blog - Follow my journey!

NRB525 · ‎01-31-2015

OP Are you paying rent? Utilities? Cell phone? Automobile insurance?

How do you know you have "no credit" ?

Have you talked with any mortgage broker or mortgage banker to ask them their advice?

The ideas here about opening a card ($200 is fine for a first card) and paying it monthly to start building credit are good. Usually people have other breadcrumbs of "credit-like" products such as phone bills that can be used to support some visibility to a payment history.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
May 2021 Paid all Installments and Mortgages, one new Mortgage EQ 761 TY 774 EX 777
April 2022 EQ=811 TU=807 EX=805 - TU VS 3.0 765

Revelate · ‎01-31-2015

Open up 2 more secured cards and get 1 secured installment loan, then sit on your hands till mortgage time. If it's 24 months before you apply you'll be set in every way, 1 year underwriting might complain that you haven't had your accounts long enough... so go get them opened up ASAP.

Priotize the mortgage first, can do everything else credit wise after the mortgage drops. Minimums on secured cards and secured installment (secured share loan from a CU).

If I were going from nothing:

1) BOFA secured - best anywhere

2) some random CU secured, DCU for style points (FICO Beacon 5.0 score) and possible mortgage later or auto loan in the future as well; their rates are hard to beat; or prioritize a local CU that you can walk into and make friends with.

3) Whatever other secured you have.

4) Share secured loan of a minimum of 3 years at any CU, Alliant is a popular choice as is SDFCU, DCU's probably works too but I haven't tried that one.

Anonymous · ‎01-31-2015

Note that credit score is not the be all, end all of lending. The underwriter will also look at other factors like the length of your history, your income, how long you have been at your present job.

It is worthwhile starting a conversion with a potential mortgage lender six months before you plan to apply to get a reality check.

Anonymous · ‎02-01-2015

@Anonymous wrote:
Note that credit score is not the be all, end all of lending. The underwriter will also look at other factors like the length of your history, your income, how long you have been at your present job.

It is worthwhile starting a conversion with a potential mortgage lender six months before you plan to apply to get a reality check.
Yup. This is what I am going to do in a month or two to see what I can do this year of 2015, then go garden for a year while everything ages so Dec 2016 I can start house hunting. I can run some searching on here about it, but I would reccomend opening a savings account with Alliant CU and applying for a secured loan of 500. That should get you started with a better credit mix. By the way, I had my first secured credit card at about 11months I checked my fico score for the first time and it was 755. I immediately apped for AMEX and Discover IT. My paper thin CR took a big hit, plus since then I gain 3 more cards but it's all part of my plan to have a beefier credit profile for when I'm ready for my first mortgage. I'm about 10 years older than you, so you are way ahead of the game. Just remember to always set up auto payments when you open your accounts. Start a mint.com account to keep track of everything. Take a look at your budget to see what is reasonable for a mortgage and start living that lifestyle a frugality already, the lend will be looking at what your spending.