Contrary to what you might think, a person’s starting credit score doesn’t begin at zero. In fact, no one’s credit score is zero. The lowest credit score is 300, but that doesn’t necessarily mean that’s a person’s starting score. If a person is just starting and doesn’t yet have any credit history, they’re more likely to have no score at all.
So, for a person just beginning their credit journey, what is the starting credit score? Read on to learn the factors that impact this from the start and the habits that can help ensure a better credit score.
Table of Contents
Key Points
• Several factors are taken into consideration to calculate a person’s credit score.
• The most important factor for any credit score is payment history.
• Starting credit scores are never perfect, but they can be built up over time.
• Establishing a few simple habits, such as paying bills on time and in full, can help build up your credit score.
• Your credit score can sometimes be viewed by businesses and lenders to confirm your eligibility for applications.
How Your Credit Score Is Calculated
There’s no standardized starting credit score. That may be partly due to certain factors that influence how a score is calculated. A person’s young credit history will impact their starting FICO® score.
The FICO® Score is a numerical scoring system widely used in the U.S. to help determine a person’s creditworthiness. The FICO company calculates the score, which ranges between 300 and 850, using the following data:
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Payment History
Payment history is the most important factor for any credit score, including a starting credit score. Paying on time and avoiding missed payments account for 35% of a person’s credit score. That’s why it’s important to pay everything from credit card bills to rent on time — even one single late payment can harm a starting credit score.
Credit Utilization or Amount Owed
The second most important factor, making up 30% of a credit score, is credit utilization. Credit utilization is the percentage of available credit a person actually uses, and it should ideally be kept at 30% or under, as higher credit utilization can cause your score to decrease.
Length of Credit History
How long someone’s accounts have been open makes up around 15% of their credit score. The longer an account has been open, the higher the credit score.
While it’s out of their hands, consumers who are just beginning to establish credit will likely be negatively impacted by this factor, lowering their starting credit score.
Recommended: How to Get a Personal Loan With No Credit History
Credit Mix
Making up around 10% of a person’s credit score, credit mix refers to the different types of credit a person has. Generally, the two types of credit are:
• Installment loans: Think car loans, student loans, and mortgages.
• Revolving credit: Includes credit cards and home equity lines of credit.
If an individual can manage different types of credit without late or missed payments, it reflects well on their score.
New Credit
Opening multiple new accounts at a time? This factor accounts for 10% of a credit score. As well as the action of opening new accounts, this includes the application of hard inquiries to your accounts.
A person with a starting credit score may have all, none, or some of these factors on their credit history. The mix varies from person to person, making it hard to predict one starting credit score for everyone.
What Is a Good First Credit Score?
Unfortunately, a starting credit score won’t be the perfect 850. More likely, it’s somewhere within the fair-credit-score range (580-669).
That’s mostly due to limited payment history. If a person just opened a credit card or started paying off their student loans, the credit bureaus can’t see an established history of timely repayment. Even if the consumer has never missed a payment, payment history is limited.
Similarly, a credit history of just a few months doesn’t give lenders enough data to judge a consumer as low- or high-risk.
Ways to Establish Good Credit
While it can be discouraging that your starting credit score is penalized just for being new, by following these tips on establishing credit, it shouldn’t take you too long to build it up:
• Paying bills on time will continue to be important, as payment history is a major factor in your credit score.
• Keeping accounts open and in good standing, even if they’re no longer used, can help lengthen a person’s history.
• Adding to the credit mix with a personal loan, credit-builder loan, or other types of credit can help boost your credit score.
• Paying bills in full can help keep the credit utilization ratio balanced at 30% or below.
• Not applying for too much at once will help you avoid the pitfall of too many hard inquiries and new accounts, which can have a negative impact.
While an individual can try to build their score proactively, a substantial portion of it will come from paying bills consistently over time.
Establishing and continuing these good habits will likely lead to a higher credit score.
Why Your Credit Score Is Important
It may be just a three-digit number, but a good credit score is a gateway to better financial opportunities. With a very good (740-799) or exceptional (800-850) credit score, borrowers have better odds of being approved for loans and may even have better repayment terms or more favorable interest rates.
Businesses and lenders may pull your credit history to confirm your qualification for any of the following:
• Credit cards
• Mortgages
• Rental apartments
• Job applications
• Car loans
• Personal loans
• Student loans
With a low credit score or no credit score, getting favorable terms or qualifying for any of the above could be challenging.
How to Check Your Credit Score
Checking a credit score isn’t just a good way to track progress. It can also highlight any incorrect or fraudulent activity tied to a person’s name.
You can check your credit score for free through your card issuer, your bank, or a nonprofit credit counseling agency. Also, anyone can get their free credit report, which is not the same as a credit score, from three nationwide consumer credit reporting companies using AnnualCreditReport.com. The site allows visitors three free reports annually, one from each credit bureau.
In addition, lenders often offer free credit score reporting on their portals.
Recommended: The Difference Between Transunion and Equifax
The Takeaway
Having a starting credit score doesn’t mean starting from zero or with a perfect 850. Establishing healthy credit habits, such as paying bills on time and in full, is important because it can help you build a solid credit score. The higher your credit score, the more financial opportunities you’ll have.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
FAQ
What are the FICO credit score ranges?
FICO credit scores range from 300 to 850. Under 580 is considered a poor score, 580 to 669 is fair, 670 to 739 is good, 740 to 799 is very good, and 800 is considered exceptional.
Can you have a credit score without a credit card?
Yes. Credit scores aren’t based solely on credit cards. The score takes into account student loans, rent, utility payments, and more.
What are the differences between FICO, Experian, and Equifax?
Experian and Equifax are credit bureaus that collect and compile credit histories for lenders and financial institutions based on data from consumers’ borrowing habits. FICO then uses that data to create a numerical credit-scoring system that measures consumers’ creditworthiness.
Do you start with a specific credit score?
There’s no standardized starting credit score. You’ll likely start with no credit score until you have an active credit history, after which your habits will determine your credit score based on factors such as payment history, the length of that history, and how much you owe.
Do I have to pay to get my credit report?
You can get a free copy of your credit report online via the website AnnualCreditReport.com. This detail of your credit history is prepared by the three major credit bureaus — Experian, Equifax, and TransUnion — and you can request your report from one or all three of these agencies.
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