You can find plenty of advise and instruction, some good and some not so, on how to establish credit. The other question that a lot people ask these days is what time is needed to establish credit history to be able to get loans. Interest rates have been low for a long time and seemingly everyone expects them to go higher. Home prices have been going lower every day and just as well, everyone thinks that they are bottoming and will bounce back. So every new college grad with a job or a fresh of the boat immigrant is in a hurry to establish credit history, get the credit score and score that house.

For the record, I think that interest rate will stay low for quite a while, while home prices will be going down, albeit slower. But then, you still will listen to CNBC and Bernanke. That does not change the fact that time to establish credit is at least 6 months. However to qualify for a home loan, you need more time, at least 24 months and a couple of trade lines.

Why it takes that long to establish credit history and get FICO score? Because the FICO score is a risk score by definition, so to predict the risk that you will default on your credit obligations, it needs a track record and 6 months is actually quite short of a term. At the very minimum, you have to meet the following criteria,
– one account that has been open for 6 months
– one undisputed account that has been reported to the credit bureau within the past 6 months
– no indication of deceased on the credit report, so if you share an account this may affect you if the other account holder is reported deceased

Once you have a credit card, use regularly it and pay off the balance if you wish monthly or carry a balance. It does not really matter as long as you meet minimum monthly payment requirements. Your initial credit score will be around 680. You then should get a second credit card and as long as your debt utilization is around 10% to 15%, your FICO credit score may well reach 720 in another 6 months.

To obtain a mortgage, you may want to wait for another 18 months. That will give you a good 24 months of at least two credit trade lines and a nice credit score. You can always try applying for a mortgage before that, and as long as you have a bigger down payment, you may well qualify.

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