Published in: Credit Cards | Sept. 21, 2018
What Does My Credit Score Start At?
Personal finance education isn’t exactly as great as it should be in the U.S., and as a result, many new adults understand little about credit scoring.
One of the most common questions young adults ask about credit is “where does my credit score start?” In other words, when you first turn 18 and have no credit cards or other debt yet, what is your credit score? And it may surprise you to learn that you don’t start with any particular credit score at all. According to the rules of the widely-used FICO® credit scoring method, you need to meet some basic requirements in order to have a score.
It’s a trick question
The FICO® Score ranges from a minimum of 300 to a maximum, or perfect score, of 850. You might think that you start out with a 300 and need to work your way up. Or maybe you think you start somewhere in the middle.
However, you’d be wrong. In fact, there’s no correct answer to the question. The truth is that consumers start out with no credit score at all.
The minimum requirements to receive a FICO® Score are at least one account that has been open for six months or more and one that has been reported to the credit bureaus within the past six months. These two requirements can be satisfied by one account or several. For completeness, the requirements also state that your credit report can’t indicate that you’re deceased.
So, when you’re just starting out -- say, when you first turn 18, or before you’ve applied for any credit accounts -- you have no FICO® Score at all.
What makes up your FICO® Score?
There are five categories of information that make up your FICO® Score, each with its own weight.
Approximately 35% of your score comes from your payment history. Lenders want to know that you’ll pay your bills on time, so it makes sense that this is the largest category. So, building a flawless record of making all of your debt payments on time is the single most important thing you can do for your credit score. On the other hand, missing payments, having accounts sent to collections, and exhibiting other irresponsible payment-related behavior can sink your credit score quickly.
The second-most important category is “amounts owed,” which makes up 30% of your FICO® score. To make this a positive influence on your score, it’s a good idea to keep your credit card and other revolving account balances at a low percentage of your credit limits. Paying down your loan balances over time also boosts this part of your score.
The length of your credit history counts for 15% of your score and includes several time-related types of information. The age of your oldest credit account, the average age of all of your accounts, and the age of each of your individual accounts are all considered, and the general rule is that older is better.
Next, another 10% of your score comes from “new credit,” which includes two things -- times when you’ve applied for credit recently and the new credit accounts you’ve actually opened. One or two credit applications or new accounts aren’t likely to have a major effect on your FICO® Score, but several in a short period of time can have quite an impact.
Finally, 10% of your score comes from your “credit mix,” which refers to the variety of different credit account types you have. The rationale here is that creditors want to see that you can handle all different types of credit accounts -- not just one or two. And it’s important to note that while this is only 10% of the FICO® formula, it will “be more important if your credit report does not have a lot of other information on which to base a score,” according to myFICO.com.
The best ways to establish credit
With all of this in mind, if you’re one of the millions of Americans with no FICO® Score whatsoever, here are some suggestions that can help you not only to establish a FICO® Score, but that can set you on the path to excellent credit.
- A secured credit card can be a great way to establish credit if you are just starting out. These products work just like regular credit cards and report your payment record to the three credit bureaus, but they require a security deposit (which you’ll eventually get back, as long as you pay your bill). I used a secured credit card to help establish my own credit, and highly recommend this route.
- Alternatively, if you have someone (say, a parent) who is willing to add you as an authorized user, it can help you meet the requirements for a FICO® Score. Just be sure that the person who adds you is responsible enough to pay the card on time every month, otherwise this can have the opposite effect that you want.
- Keep your credit card balances under about 30% of your available credit (or ask the person who added you as an authorized user to do so). Experts generally agree that above 30% can be a red flag when it comes to your credit score.
- Apply for new credit sparingly. A flurry of new credit accounts and applications all at once can be a big negative catalyst to your score, especially if you have a limited credit history.
- Aim to have at least two different types of credit accounts -- such as credit cards, retail accounts, mortgages, auto loans/leases, student loans, etc. I previously mentioned that credit mix is more important when you have a limited credit history and establishing a strong history with two (or more) types of credit accounts can help boost your new FICO® Score.
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