What Does Your Credit Score Start At?

Are you just beginning your credit journey? Are you about to take out your first loan or apply for your first credit card? You may be wondering what does your credit start at? Do you start with a perfect score or if you have to start from scratch? Do you have endless questions about this and other things about your credit score? If you answered yes to any or all of these questions, you’ve come to the right place. 

When you begin your credit journey, your credit score doesn’t start at anything. Only when you start taking out debt like loans and credit cards will your credit score begin to form. Still have some questions? Read on and let’s dive some more into your credit score and how to start building credit.

What Does Your Credit Score Start At?

Essentially everyone over the age of 21 or so has a credit score. But how did everyone get a credit score? Does everyone start at the same place?

If you're a bit of a pessimist, you might assume that everyone starts with the worst possible score and then must claw their way to the top with tooth and nail. If you're more of an optimist, you might think everyone starts with an excellent credit score and is given a completely clean slate to start with. If you are somewhere in the middle, you might even think everyone’s starting credit score is right in the middle. In reality, it is none of these options.

When you start having credit, you don’t start with a credit score at all. Your credit score the credit bureaus give you mostly relies on your credit history. Until you have anything to add to your credit history, the credit bureaus have nothing to base your score on. Once you start taking out loans, getting credit cards, or doing other things that affect your credit, your credit score will finally start to form out of thin air. 

What Does Your First Credit Score Mean? 

The initial starting point for your credit score depends on your early actions when you start your credit journey. For example, if you miss your very first payment on your very first credit card, your credit score will start a bit lower. While you likely won’t start at the worst possible, you will start below average.  If you have only had mishaps to start, the only evidence credit bureaus will have is of you not paying back your credit card debt.

On the other hand, if you were to consistently pay off this same credit card balance every month your credit score will start fairly high. However, it is basically impossible to immediately have the best possible credit score right away. 

Whatever your first credit score is, do not get too hung up on it. If you start low do not be discouraged. If you start at the top, don’t get too confident. You will never have a better opportunity to fix your credit score than right at the beginning. 

Turning your credit score around after one misstep is much easier than trying to turn it around after years of bad credit habits. Start good habits early to build a solid foundation for a higher credit score. Let's look at what makes up your average credit score so you can know what you can improve on!

What Makes Up My Credit Score?

Anytime a “credit score” is mentioned it is assumed you are talking about the FICO credit score. The FICO credit score is a three-digit number that is calculated by the three major credit bureaus, Experian, Equifax, and TransUnion, to sum up your creditworthiness to lenders. The FICO credit score starts at 300 on the lower end and goes up to 850 on the high end. 

Your credit score is made up of five components. The components are your payment history, credit utilization, length of credit history, credit mix, and new credit. Let’s take a look at these individually. 

• Payment History (35%):  Your monthly payment history has the biggest weight on your credit rating. Your payment history is simply the record of your past debt payments and even rent payments from the last 7 to 10 years. Above all, lenders want to see concrete evidence of whether you can be trusted to pay back your credit card debt. Any payment that’s been reported by your lender will be factored into here. 
• Credit Utilization Rate (30%): Credit utilization sounds complicated, but it’s easy to understand. Your credit utilization is how much of your credit amount you use a month. Your credit utilization ratio is the percentage of this credit usage. If you are given $2,000 a month to use with your credit card and use $400, your credit utilization ratio is 20%. Lenders and credit bureaus want to see your credit utilization ratio be at 30% or below your available credit amount. Using any more credit than this can actually hurt your score. 
• Length of Credit History (15%): The longer you have had your credit account the better. If you’ve successfully been making payments for 10 years, your length of credit history looks much better to a lender than someone who has only had credit for 1 year. Any credit history that is 7 years or more is good for your score. Consistency is key for lenders!
• Credit Mix (10%): Your credit mix is made up of the different types of debt that you have taken on. Lenders want to see this mix be as diverse as possible. For example, if your credit mix only consists of credit cards, an auto loan lender might see this as a red flag, since you have not had any experience with any type of loan. 
• New Credit (10%): Any recent loan or credit accounts you’ve opened will impact your credit score. It’s better for your credit score if you don’t have many recent accounts opened. Remember that every time you seek new credit though, you get a credit inquiry on your credit score. A hard inquiry is an asterisk you get when seeking new loans or lines of your credit. These can lower your score anywhere from 5-10 points, so make sure you have less than 5 in any 6 month span. 

How to Check Your Credit Score

You now have all this knowledge in your brain about what your credit score is made up of and what it initially starts at, but how can you even check your credit score in the first place? 

Each credit bureau that we mentioned earlier allows a free credit report check once a year. In other words, you can check your credit score for free 3 times a year at any point. If you want to check your credit score beyond these free instances, you will need to pay a small fee.

Knowing where your current credit score stands is extremely important, especially if you are looking to take out a loan or get a new credit card anytime soon. For instance, if you want to get a car loan and you check your credit score and realize you have a bad credit score, you know that you need to make a quick turnaround if you want to get your money for that car. On the other hand, if you have a good credit score you know that the steps you’ve been taking to improve your credit score are paying off and that you should continue to do them. 

Checking your credit score and tour credit report can also help you to know where you may have slipped up and what areas of your credit can be improved. Checking your credit score and credit report frequently can really help you figure out how you can start improving your credit score. 

How Long Does it Take to Improve Your Credit?

Just checked your credit score and the number is not what you were hoping for? Are you about to apply for a credit card or a loan and aren’t sure if you are going to get your application for your money approved? Are you looking to do some quick changes that can boost your credit score in 30 days or even overnight? Unfortunately, it is not that easy. If it was, everyone would have a credit score!

Your credit score is something that is made up of years and years of credit cards, loans, and other payments. As such, there really isn’t anything you can do overnight to improve your credit score. To make any sizable changes on your credit score, you will likely need 6-12 months before you ever see a really big change in your credit. 

Making your payments consistently to your financial institution over the course of months and years without missing any payments is one of the best ways to improve your credit score. However, this is not the only one. Let's look at some of the other ways to improve your credit score.

How to Build a Good Credit Score

Want to start your credit score off on the right foot? Do these things to give yourself a good base for your credit score to be built on. 

Make All of Your Payments

Going back to what makes up your credit score, recall that your payment history makes up 35% of your score. This is the most important factor and as such you should focus on improving it. It might seem obvious, but the best way to do this is to make every single payment on time and in full. 

Anytime you make a payment to your lender or credit card company, it is almost always sent to a credit bureau. Similarly, every time you miss a payment by more than 29 days or completely fail to make a payment it is also reported to the bureaus. However, one missed payment hurts your score way more than a successful payment helps it. 

Do your best to make every payment over the course of months and years and you will find your credit score increases as a result. 

Maintain Your Credit Utilization Ratio 

Remember that your credit utilization is the amount of your credit limit you use every month. Your credit utilization ratio in turn is this amount put into a percentage. Anything over a 30% credit utilization ratio can hurt your score. 

Keeping your credit utilization ratio under 30% is important to achieving a different credit score. Spending less money on your credit card is a good option for doing this, but it might not be realistic for you in your current financial situation.

Instead, you can also ask for your lender or credit card provider to raise your credit limit. This way, you can spend the same amount of money as before but your credit utilization ratio will decrease. 

Request a Credit Limit Increase

Many people are under the assumption that opening up new lines of credit and credit cards will weaken your credit, but that isn’t always the case. Increasing your credit limit can positively impact your credit score if done appropriately. 

Roughly 30% of your credit score is attributed to your balance compared to your overall credit limit. If you were to expand your credit limit compared to your balance, you can improve your credit score. 

This occurs because you are improving your balance to limit ratio. Here’s an example, Bob has a credit card with a $5,000 limit and he has a balance of $2,500, a credit utilization of 50%. If Bob were to open up another $5,000 credit card and maintain a zero balance he would have been successful at reducing his balance to limit ratio to 25%. 

Get a Secured Credit Card

The majority of credit cards are considered unsecured credit cards that require no collateral, but if you have bad credit or no credit history it can become impossible to acquire one of these cards. 

If bad credit is plaguing your financial situation then secured credit cards are often the first step to financial recovery. Secured credit cards are affordable and will provide you with the same credit-building benefits that come with traditional credit cards. These cards allow users to begin building up their positive payment history, which will then boost their credit score and allow them to gain access to unsecured credit. 

To get a secured credit card you’ll need to put up collateral in the form of a refundable security deposit. How much money you put down will typically determine your initial credit limit. For example, if Bob puts down a $500 deposit he’ll have a $500 credit limit. 

In this case, if Bob were to default on his credit card the financial institution would then use his security deposit to pay off the defaulted debt. Secured credit cards are often the best way for young people to start building payment history.

Become an Authorized User

For many forms of debt, mainly credit cards, the borrower can add people called “authorized users” to their account. An authorized user is essentially someone that has permission to use the money in the account without being obligated to pay them back. 

Anytime there is an authorized user on an account, they enjoy the same boost to their credit score as the person paying back the account does. This means that you can be an authorized user on a friend of a family member’s account that consistently makes payments and your credit score could go up for doing nothing. This is a great way to build your credit score early on, which is why so many parents add their kids as authorized users to their accounts when they are young. 

However, be aware that when the account closes or you are no longer an authorized user this boost to your credit score completely disappears. 

Credit Builder Loan with Possible

At Possible, we offer an awesome product that can help you increase your credit. Whether you are just starting your credit journey or you are far along in it, we can provide value for you. We call our product the “credit builder loan.”

With our credit builder loan, we give you an amount of money under $500 that is to be paid back in 4 weekly installments or a payment every week for a month. We then report your payments to the Experian and TransUnion. As you pay the loan back, your credit history is built. This in turn builds your credit score over time. 

We understand that building credit is hard, especially if you have poor credit. Because of this, we do not check your credit score when you apply for our loans. Unlike other lenders, we want to build value for our customers. We don’t want to see you struggle with payments and get caught in the cycle of a payday trap. We offer competitively low APR and even allow you to extend your payments up to 29 days if you are struggling to make a payment. Overall, we want to give you the money you need while also ensuring you come out the other side better than before. 

Think you want a loan with Possible Finance? Download our app today and get started.