What Does Your Credit Score Start at?

what is your credit score starting out

When you first start building credit, what credit score do you start with? If you’re a young adult who is just starting to apply for credit cards, look for an apartment, or get your first car loan, you may be curious about your initial credit score. Do you start with (a) the highest possible credit score, (b) the lowest possible credit score, or (c) somewhere in between? You might be surprised by the answer: It’s (d), none of the preceding. In reality, everyone starts with no credit score.

Your credit score does not start at zero

Starting with no credit score does not imply that your credit score is zero. Rather, your score does not exist. That’s because your credit score is only calculated when a lender, credit card company or other entity requests it to check your creditworthiness. If you haven’t yet established a credit history, there’s no data to base that calculation on, so there’s no score at all.

When you first start building a credit history, you may believe that your credit score will start at 300 (the lowest possible FICO® Score). However, unless you start out with extremely poor credit habits, it’s highly unlikely that your first credit score will be that low. Neither will your first credit score be the highest (850 according to the two most commonly used credit scoring models, FICO® and VantageScore®). When you’re new to credit, you simply don’t have a long enough credit history to earn the highest possible score.

How Is Your Credit Score Determined?

To understand why your first credit score is likely to be in the middle range, you must first understand how credit scores work. Your credit score is determined by five factors:

  1. Payment history: Whether or not you pay your bills on time is the single most important factor in your credit score. Payment history accounts for 35% of your FICO® Score, which is why it is critical to never miss a payment.
  2. Credit utilization: Credit utilization refers to how much of your available revolving credit you are using. Divide the amount of revolving credit you’re currently using by the total of all your revolving credit limits to calculate your credit utilization ratio. Aim to keep your credit utilization ratio under 30% overall and on each credit account, which you can accomplish by keeping balances low or at zero. Your credit utilization accounts for 30% of your FICO® Score.
  3. Credit history length: The length of time you’ve used credit accounts for 15% of your credit score. This considers the age of each account on your credit report as well as the average age of all open accounts. Credit bureaus have more information about you if you have a longer credit history, which generally translates to higher credit scores.
  4. Credit mix: Credit is classified into two types. Installment credit, which includes car loans, personal loans, mortgages, and student loans, allows you to borrow a fixed amount and make a fixed monthly payment to repay the total by a specific date. Revolving credit, on the other hand, allows you to spend up to a certain credit limit and either pay the balance in full each month or carry it over as long as you make a minimum payment. Revolving credit includes credit cards, store cards, and home equity lines of credit. It will help your credit score if you can demonstrate that you can responsibly manage various types of credit accounts. Your credit mix accounts for 10% of your credit score.
  5. New credit: The number of new credit accounts you’ve opened recently, as well as the number of hard inquiries on your credit report, account for 10% of your credit score. A hard inquiry occurs when a lender examines your credit report in order to make a decision on your application. Multiple hard inquiries in a short period of time indicate a higher risk and can harm your credit score.

How to Check Your Credit Score

If you don’t know what your credit score is, you can easily find out by requesting a free FICO® Score from Credit Karma. You may also be able to obtain a free credit score from credit card companies or lenders with whom you have an account. Keep in mind that, while FICO is the most commonly used credit scoring model, other models exist, and your score may differ slightly depending on which model is used. Discover how to check your credit score and what it means.

How to Increase and Maintain Your Credit Score

How can you help maintain or improve your credit score once you have one? To begin, you must understand what is a considered good credit score. The FICO® Score and VantageScore models both have a range of 300 to 850. A score of 670 or higher on the FICO scoring model is considered good, while a score of 800 or higher is considered exceptional. A VantageScore of 661 or higher is considered good, and a score of 781 or higher is considered excellent.

The higher your credit score, the more likely it is that you will be approved for loans or credit at the best rates and terms. The lower your credit score, the more difficult it is to obtain a credit card, favorable loan terms, or even rent an apartment.

There are numerous things you can do right away to build credit history and improve your credit score, whether you want to improve your credit score from good to excellent or you want to repair your bad credit score to the fair range.

Use Credit Cards—Wisely

If you already have one or more credit cards, responsibly managing these accounts can go a long way toward assisting you in building credit. Pay all of your bills on time, and keep your credit utilization ratio on each card, as well as across all of them, under 30%. (the lower, the better).

If you don’t already have a credit card, applying for one is a good way to start building one. Use the card for small purchases and pay your bill on time and in full each month.

If your lack of credit history prevents you from qualifying for a general-use credit card, consider the following alternatives:

  • Apply for a secured credit card. This necessitates a deposit, which typically serves as your credit limit. However, keep in mind that your deposit does not cover monthly payments; you must make them separately. Check that the card company reports payments to the three national credit bureaus (Experian, TransUnion and Equifax). If you have a track record of making on-time payments, the issuer may upgrade you to a regular unsecured card.
  • Make an application for a store credit card. These are frequently easier to obtain than general-purpose credit cards. If you choose this option, make sure to pay off your balance each month. Retail cards typically have high interest rates, so carrying a balance can cost you a lot of money in interest charges.
  • Request that a family member with good credit add you as an authorized user on their credit card. You’ll receive your own card (if the primary cardholder agrees) and benefit from their credit history.

Use Loans to Improve Your Credit

If you have outstanding student loans, one of the simplest ways to improve your credit is to make all of your loan payments on time. If you do not have student loans, obtaining a car loan or a personal loan and repaying it on time is another way to demonstrate your ability to manage credit responsibly. If you are having difficulty obtaining favorable loan terms on your own, asking someone to cosign on the loan with you can help.

Another option: Some smaller banks and credit unions provide credit-builder loans to assist you in establishing credit. These loans, like secured credit cards, require you to make a deposit, which you then repay over a period of six to twenty-four months. Those payments are reported to credit bureaus, and your deposit is returned once the loan is paid off.

Remember the factors used to calculate your credit score no matter what type of loan or credit you obtain. Make sure to pay your bills on time, keep your credit utilization ratio under 30%, and avoid accumulating too many hard inquiries on your credit report.

You may even be able to build credit and improve your credit score simply by paying your daily living expenses. Experian BoostTM, for example, is a free service that adds positive cellphone and utility bill payments to your credit file, often immediately improving your FICO® Score.

A Stellar Score

Your credit score does not begin with a zero. However, regardless of your current credit score, using credit responsibly will help you build a credit history, improve your credit score, and keep it as high as possible. Begin by obtaining a free copy of your credit report. Once you know where you stand, it will be much easier to make the necessary moves to keep your credit in good standing.

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Amber Watson