Credit tips

A WORD ABOUT THE CREDIT SCORE SYSTEM

Nothing is more important when you are trying to establish credit and build it positively than your credit score.  When you are first starting out establishing credit, there is literally no score on your credit report.  The system works as follows based on the range that your credit score falls into:

  • 500-559 extremely risky
  • 560-619 risky
  • 620-674 sub-prime
  • 675-699 average
  • 700-719 very good
  • 720-850 excellent

Additionally, moving up the scale even a bracket at a time could take a while depending on how well you maintain your credit track record.

CONSIDERATIONS OF ESTABLISHING AND BUILDING GOOD CREDIT

Determining how long it will take you to establish good credit depends on you and some important considerations.  Here is a list of 3 key considerations that affect this:

  • Annual income – the rule of thumb is that the more you earn, the more rapidly you can build your credit.
  • Availability of a co-signer with an established credit history – many first timers are oftentimes asked to have a co-signer who will also be responsible on your account should you default.  Although many people are willing to co-sign for a family member or close personal friend, not every co-signer’s credit is that good either.
  • Existence of a previous credit history – re-establishing a credit history is not an easy thing to do, especially when your past history has relegated you below a score of 660, it will be very difficult for you to establish your credit.

TIME FRAME INVOLVED IN ESTABLISHING GOOD CREDIT

In answer to the question “how long does it take to establish credit”, it varies significantly based on the aforementioned variables.  For instance, an individual who with no prior credit history who has secured a loan, makes their monthly payments on time, and has a good annual salary can probably build good credit within 6 to 12 months.  Conversely, the person who wants to re-establish their credit, has a bad past credit history, a low credit score, and lower income could spend up to 10 years repairing that credit history.

A FEW PRECAUTIONS

There is no bonafide shortcut to building or repairing your credit score.  However, it is a matter of good financial planning, handling your credit responsibly, and reasonable spending habits that are critical.  Following those 3 precautions can make the process easier for you.