If you want to start building your credit score, but have not started the process yet, you are probably curious about what your starting credit score will be. Here is an explanation into what that score is, how it’s calculated, how you can improve it, so you can build your credit score properly early on.
No Credit Score?
It may come as a surprise but at first, we don’t have a credit score. Your information is not reported to the credit bureau until you take out a credit card or loan. And even when you do, it takes around 6 months for you to get your first credit score.
But, it does not necessarily mean that your starting credit score will be at zero. Each credit bureau conduct their scoring range differently, and on average, most start around 300.
The more established your credit history, the better the score. For example, about one-third of baby boomers have excellent credit. That is because they built up their credit over time. They probably have multiple credit cards or loans that have been opened for many years.
On the other hand, Millennials are just starting to build and work on their credit. Due to this, most start with poor to fair scores.
How Can I Calculate My Credit Score?
If you want to start building your credit, you will have to know how to calculate your credit score and what factors contribute to your score.
Here is a quick rundown of what factors into your credit score:
- Payment History (35%) – It shows how often you have made your payments on time
- Credit Utilization (30%) – To get a better score, you should only use 30% of your total available credit. For example, if you have a $1,000 credit limit, you should only use up to $300 at a time.
- Credit Length (15%) – Keep your credit cards open and use it regularly if you can. The longer you have an active credit card, the more likely you will have a higher credit score.. The age or length of your credit history also contributes to your score.
- Credit Mix (10%) – Potential lenders like to see more than just a credit card, such an auto or mortgage loan.
- Hard Inquiries (10%) – Creditors may review your credit reports when you apply to open a new line of credit. While checking your credit score won’t hurt your account, you should limit the number of hard inquiries on your credit to keep your score at a good range.
What If I Have Insufficient Credit History?
If you have insufficient credit history when you are first starting out, don’t panic. This is common in the beginning of building you credit score. Insufficient credit history means your credit isn’t old enough to meet the requirements of a lender.
If this is the case for you, here are some ways you can overcome this:
- Apply for a credit card
- Apply for a credit builder loan
- Report your monthly rent payments
- Add an authorized user to your credit card, or become an authorized user for someone else
What Your Beginning Credit Score Means
Your first credit score will give you some insights that you can take into account for your future finances, such as:
- Your Performance: The nature of your initial performance as a borrower. If you start with a low score, it will indicate to you that you should make some changes.
- Chances of Approval: You will find which types of credit you will be likely to qualify for. For example, if you have a credit score in the good range, you will have a good chance at being approved for a credit card. If you find this is not the case, you can figure out how to increase your score to meet the requirements.
The beginning of starting your credit score is not easy and it can take a few years to get your credit score to where you want it to be. This is why it’s a good idea to start early on, before you apply to take out a mortgage or car loan. Lenders want to see your credit history and scores, to make sure they can trust you as a borrower.
Although building your credit can be a long and confusing process, understanding how to lay the foundation for a good credit score early on will make it easier for you in the long run.
And if you have not started building your credit, you should consider doing so. You have a clean slate and now that you know what to do, you can go into building your credit score with confidence!