When people start using credit, they start building both a credit history and a credit score, but what credit score do you start with? If you’ve never applied for a credit card or taken out a loan, do you at least have a credit score? If you’re new to credit, what are the best ways to quickly establish a good credit rating?
Let’s take a look at how credit scores work, including how your first credit score is calculated, how to establish good credit, and whether there is a “starting credit score.”
Where does your credit score start?
It all depends on how you start using the credit. Some people wonder if the starting credit score is zero, for example, or if we all start with a credit score of 300 (the lowest possible FICO score). The truth is that there is no “starting credit score”. We each build our own unique credit score based on how we use credit.
If you haven’t started using credit yet, you won’t have a credit score. You start building your credit score after opening your first line of credit, such as a credit card or student loan. At this point, your credit score is determined by how you use that initial credit account. As lenders report your credit activity to the three major credit bureaus (Equifax, Experian, and TransUnion), you will begin to build a credit file that will be used to determine your starting credit score.
According to FICO, the minimum scoring criteria are:
- At least one credit account open for six months or more.
- At least one credit account that has been reported to any of the three major credit bureaus within the last six months.
It is important to note that you can meet these requirements with one account or several.
When a lender or landlord investigates your credit history, they see a credit score that reflects how you use your open credit accounts. Key factors include whether you make payments on time and how much of your available credit you are using. If you use your first credit account responsibly, you might be building good credit before you know it. If you miss payments or max out your credit cards, your brand new credit score could suffer.
What is the starting credit score? This is the wrong question to ask, since the answer does not technically exist. Instead, ask yourself how you can establish the best credit score possible.
How is your credit score calculated?
If you want to establish and maintain a good credit score, you need to know how a credit score is calculated. Your FICO credit score is based on the following five factors:
- Payment history (35%): Your on-time payment history is the most important factor that determines your score. Even if you can only make the minimum payment on your credit cards, make sure you do it on time.
- Amounts due (30%): This is your credit usage. Try to keep the amounts you owe below 30% of your available credit. If you have a credit card with a credit limit of $1,000, for example, try to keep your outstanding balance below $300. If your balance increases, do your best to pay it off as quickly as possible.
- Length of credit history (15%): This accounts for how long you’ve been using credit is another key role in building your credit score. If you’re new to credit, your credit history won’t be very long, but it’s only a matter of time.
- Composition of credit (10%): The different types of credit accounts in your name also play a key role. Your credit score might improve if you have both revolving debt (like credit cards) and installment debt (like loans) in your credit history, but don’t worry if you don’t. not yet taken out a loan. You can still establish a good credit score with just credit cards.
- New credit (10%): The final factor in your credit score is based on how often you apply for new credit. Try to wait three to six months between credit card applications to avoid lowering your credit score with too many new credit applications.
What are the FICO credit score ranges?
In addition to understanding how a FICO credit score is calculated, it’s a good idea to know about FICO credit score ranges. FICO scores range from 300 to 850 and are broken down into the following categories:
- Exceptional: 800-850
- Very well: 740-799
- Good: 670-739
- Fair: 580-669
- Very poor: 300-579
Your goal should be to get your FICO score above 670 as quickly as possible. Once you have good credit, you can apply for some of today’s best credit cards. In addition, it will be easier for you to take out a mortgage loan, rent an apartment, buy a car, subscribe to a new smartphone plan and Suite.
Can you have a credit score without a credit card?
Is it possible to build up credit without a credit card? Yes, but you still need to have at least one line of credit associated with your name. If you take out a student loan or car loan, for example, these credit accounts become part of your credit history and help establish your starting credit score. You can also build credit by becoming an authorized user on a friend or relative’s credit card, or use a service like Experian Boost to add telecom and utility payments to your Experian credit report.
If you don’t have a credit card, where does your credit score start? It all depends on how you use other credit accounts in your name. If you’re making timely payments on your student loan, for example, you’re working hard to build up a positive credit history. If your payments are consistently late, your credit history and credit score might not be as good.
How to check your credit score
If you’re new to credit, it’s a good idea to check your own credit score before you start applying for additional credit cards or loans. This way, you won’t make the mistake of applying for a credit card designed for people with great credit when your own credit is still average.
Many banks and credit card issuers give you access to free credit scores. Credit monitoring services provide weekly credit score updates and monitor potential threats to your credit (such as identity theft attempts). You can also access your credit score through some popular personal finance apps, such as Mint.
Some free credit score services will provide you with a VantageScore instead of a FICO score. VantageScore is one of FICO’s main competitors and although its scoring system is slightly different from FICO’s, the credit ranges do overlap. If you have good credit with VantageScore, you will have good credit with FICO.
The bottom line
Your credit score doesn’t start at zero, but no matter how you choose to build a credit history, it’s imperative that you start off on the right foot. You can build good credit by selecting the right credit card to meet your financial goals and habits, making payments on time, keeping balances low, and tracking your credit history as it grows. .
These steps will help you establish a positive credit history, establish good credit, and prepare you for responsible credit card use throughout your life. There is no starting credit score, but you have a lot of control over where your credit score ends.