What Credit Score Do You Start With?

Turning 18 is a big deal in everyone's life. You get the right to vote, marry, work, join the army, apply for a credit card, and much more. In most cases, 18-year-olds still live with their parents, who remain the household decision-makers. But if they are cramping your style, you are free to move out, and they can’t do anything about it.

Moving out and many other major decisions at that age will have serious consequences further down the line, one of them being your credit score.

Where Your Credit Score Start At

Many people seem to believe that you start at the bottom of the credit ladder with a 300 credit score, which is equal to zero points, but this is simply not true. We are taught that having a credit score is required to apply for a credit card, yet as someone without a credit history, you can’t start with a credit score. This applies to everyone, regardless of age. 

A minimal requirement for acquiring a FICO credit score is to have at least one account active for six months, at least one account to report to any of the three credit bureaus, and no reports of a deceased credit card owner.

The first two are self-explanatory, while the third requirement only comes into play if you share an account. Once you’ve met the minimum requirement, you will get your starting credit score. 

What Makes Up a Credit Score?

While you don’t start with a score, the moment you sign up for your first credit account, you obtain a score. It’s important to know what constitutes your credit score. 

The FICO credit score is calculated using five factors: 

1. Payment history: 35%
2. Amounts owed: 30%
3. Length of credit history: 15%
4. Credit mix: 10%
5. New credit: 10%

Payment history is the most important of the five factors, and it’s pretty self-explanatory. It shows your track record of credit account payments. It’s something any lender will want to know before approving you for any kind of credit. The first six months after opening your first account are critical for establishing a good credit score. 

FICO will also check how many accounts you have on your credit file and how much you owe, which isn’t a bad thing on its own. But having too many accounts with substantial debt can raise a red flag for any lender.

The length pertains to all of your accounts and their ages: the oldest, the newest, and the average age of all accounts. Having a long credit history is a good thing, but it isn’t necessary for a good credit score. 

Your credit score isn’t impacted only by credit card debt. The FICO score is also based your installment loans, mortgage loans, retail accounts, and company accounts. 

When starting out, it may seem like a good idea to take on multiple credit accounts at the same time and build your credit score with them. In truth, the idea isn’t really that great. A FICO score takes into consideration how many new, same-type accounts you have opened in a short span of time. It is also based on your credit history and how long it’s been since you opened a new account. 

Since you are just establishing your credit score, you won’t have any credit history, which will reflect rather poorly on this part of scoring. Don’t forget that each new account requires a credit check, which can also impact your credit score.

FICO itself states that the scores for people who have not been using credit for long will be calculated differently, but it doesn’t actually specify how. So expect to have a grace period of at least a year or two before you start being evaluated like everyone else.

All in all, those first few years are crucial in terms of establishing a good credit score and developing a good credit history. 

How To Build a Credit Score

Now that you know what's included in your score, it’s time to see how you can start building it properly. You have a couple of options to choose from:

• Credit card
• Loan
• Authorized user
• Utility bills

Getting Your First Credit Card

It’s almost impossible to build a credit score without a credit card. That is why most people decide to get one in the first place, but it’s a bit tricky when you are just starting out without a full-time job or if you are a student. 

Obtaining a credit card without a credit score can be hard. Specifically, you need to find a credit card aimed at young adults who are just starting out. The last thing you need is to be hit with a steep annual percentage rate at the outset of your financial journey. You can get an unsecured or a secured credit card, keeping in mind that there are major differences between the two options.

Namely, the unsecured credit card has a higher APR and stricter requirements. On the other hand, secured credit cards require a security deposit to open an account, which reduces the risk to the bank and makes them easier to obtain. 

With no score, you'll mostly use secure credit cards at first, but you can switch to unsecured credit cards once your score rises above 670, giving you access to better credit card deals with a lower APR.

Building Your Credit Score With a Loan

While acquiring a credit card is the most popular method for establishing your initial credit score, it is not the only one. Taking on a loan is also a viable method of building your score. Most banks and credit unions will offer small loans aimed at building up their users' credit scores.

Another way young people start building their credit scores is by taking out a student loan. Love it or hate it, for some people a student loan is the only way to pay for college. 

Becoming an Authorized User

Probably the best starting point is getting someone to help you out by becoming an authorized user on their credit card. But before you commit, make sure that the credit card issuer reports authorized users to the credit bureaus.

An authorized user gets a credit card and can make purchases just like the primary cardholder, but all the responsibility lies with the primary cardholder. Still, this doesn’t mean you don’t have to pay for anything! All positive or negative credit behavior will have an impact on both users' credit reports. So make sure you are paying what you are due. 

Putting Utility Bills to Good Use

While getting a credit account is only a matter of time, you don’t have to start with credit right away. Companies like Experian can boost your credit score by reporting your on-time payments of utility bills, internet, cable, phone, and streaming services to credit bureaus. In turn, this will improve your payment history even though you haven’t even opened a credit account.

FICO Credit Scores Ranges

These are credit score brackets:

• Poor: 300-579
• Fair: 580-669
• Good: 670-739
• Very Good: 740-799
• Exceptional: 800-850

After six months, when you meet the minimum requirement for a FICO score, you’ll receive your first credit score based on how you used your account in the previous six months. Although it isn’t impossible to start with a 300 score, it can only happen if you fail to cover any of your debt, which demonstrates bad credit habits. 

In most cases, your starting credit score will be somewhere around 500, with a tendency to grow as your account gets older. It’s possible to end up even higher, but it would require some risky moves, which we wouldn’t recommend when you start building your score. Slow and steady wins the race here. 

How To Check Your Credit Score

The good news is that your score isn’t set in stone. It will change over time depending on your fiscal decisions. As long as you pay your bills on time, don’t miss a credit card payment, are careful about credit utilization, don’t apply for new credit frequently, and keep your oldest account active, you should see your score rise. 

From time to time, you should check your credit report for any inconsistencies and dispute them in a timely manner. After all, mistakes can and will happen in any system. You can request a copy of your credit report once every 12 months from each credit bureau through the Annual Credit Report. 

While your credit score is based on your credit report, you won’t get your score with the report. Instead, you’ll have to see if the credit card company wants to provide you with your score, or you’ll have to buy it from one of the three credit bureaus (Equifax, Experian, and TransUnion).