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Does Your Credit Score Start at Zero?

What credit score do you start with when you're just beginning to build credit? If you're a young adult just starting to apply for credit cards, look for an apartment or get your first auto loan, you may wonder what your initial credit score is. Do you begin at (a) the highest possible credit score, (b) the lowest or (c) somewhere in between? The answer may surprise you: It's (d), none of the above. In reality, everyone starts with no credit score at all.

Your Credit Score Doesn't Start at Zero

Starting with no credit score doesn't mean your score is zero. Rather, your score simply doesn't exist. That's because your credit score is calculated only at the moment that a lender, credit card issuer or other entity requests it to check your creditworthiness. If you haven't yet built a credit history, there's no information on which to base that calculation, so there's no score at all.

Once you begin to establish a credit history, you might assume that your credit score will start at 300 (the lowest possible FICO® Score ). But it's highly unlikely your first credit score will be that low, unless you start off with very poor credit habits. Nor will your first credit score be the highest level (under the two most commonly used credit scoring models, FICO® and VantageScore®, that's 850). When you're new to using credit, you simply don't have a robust enough credit history to earn the highest score.

How Your Credit Score Is Calculated

To understand why your first credit score is likely to be somewhere in the middle range, it's important to know how credit scores work. Your credit score is calculated using five factors:

  1. Payment history: The most important single factor in your credit score is whether or not you pay your bills on time. Payment history accounts for 35% of your FICO® Score, which is why it's so important never to miss a payment.
  2. Credit utilization: Credit utilization refers to how much of your available revolving credit you're using. Your credit utilization ratio is calculated by dividing the amount of revolving credit you're currently using by the total of all your revolving credit limits. Aim to keep your credit utilization ratio under 30%, both overall and on each credit account, which you can do by keeping balances low or at zero. Credit utilization accounts for 30% of your FICO® Score.
  3. Length of credit history: How long you've used credit accounts for 15% of your credit score. This takes into consideration the age of each account on your credit report as well as the average age of all your open accounts. The longer your credit history, the more information credit bureaus have about you, which generally translates into higher credit scores.
  4. Credit mix: There are two main types of credit. With installment credit, which includes car loans, personal loans, mortgages and student loans, you borrow a set amount and make a fixed monthly payment to pay back the total by a specific date. The other type, revolving credit, allows you to spend up to a certain credit limit and either pay the balance in full each month or carry it over as long as you make a minimum payment. Credit cards, store cards and home equity lines of credit are examples of revolving credit. Showing that you can manage different types of credit accounts responsibly will help your credit score. Credit mix accounts for 10% of your credit score.
  5. New credit: The number of new credit accounts you've recently opened, as well as the number of hard inquiries on your credit report, accounts for 10% of your credit score. A hard inquiry occurs when a lender reviews your credit report to help them make a decision about your application. Multiple hard inquiries within a short time indicate greater risk and can hurt your credit score.

How to Check Your Credit Score

If you're not sure what your credit score is, it's easy to find out by getting a free FICO® Score from Experian. You may also be able to get a free credit score from credit card issuers or lenders with whom you have accounts. Keep in mind that although FICO is the most commonly used credit scoring model, there are other models out there, and your score may vary slightly depending on which model is used. Learn more about how to check your credit score and what it means.

How to Build and Maintain a Good Credit Score

Once you have a credit score, how can you help maintain or improve it? First, you need to understand what is considered a good credit score. Both the FICO® Score and VantageScore models range from 300 to 850. Using the FICO scoring model, a score 670 or higher is considered good and a score of 800 or above is considered exceptional. A VantageScore 661 or above is considered good while a score 781 or above is considered excellent.

The higher your credit score, the more likely you are to be approved for loans or credit at the best rates and most favorable terms. The lower your credit score, the more difficult it will be to get a credit card, obtain favorable terms on a loan or even rent an apartment.

Whether you want to improve your credit score from good to excellent or you're trying to raise your poor credit score to the fair range, there are plenty of things you can do right away to build credit history and improve your credit score.

Use Credit Cards—Responsibly

If you already have one or more credit cards, managing these accounts responsibly can go a long way toward helping you build credit. Pay every bill on time, and keep your credit utilization ratio on each card, as well as across all your cards, under 30% (the lower, the better).

If you don't have any credit cards, applying for one is a good way to start building a credit history. Make small purchases on the card and pay your bill on time and in full each month.

If your lack of credit history won't allow you to qualify for a general-use credit card, consider these alternatives:

  • Get a secured credit card. This requires putting down a deposit, which typically becomes your credit limit. Keep in mind, however, that your deposit does not cover monthly payments; you must make those separately. Make sure the card issuer reports payments to the three national credit bureaus (Experian, TransUnion and Equifax). The issuer may transition you to a regular unsecured card if you have a history of on-time payments.
  • Apply for a store credit card. These are often easier to get than general-use credit cards. If you go this route, be sure to pay off your balance every month. Retail cards typically charge high interest rates, so carrying a balance could cost you a lot in interest charges.
  • Ask a family member with good credit if they'll add you as an authorized user on their credit card. You'll get your own card to use (if the primary cardholder agrees) and reap the benefits of their credit history.

Use Loans to Build Credit

If you have outstanding student loans, one of the easiest ways to build credit is simply to make all your loan payments on time. If you don't have student loans, getting a car loan or a personal loan and repaying it on time is another way to demonstrate you can use credit responsibly. If you have trouble getting good loan terms on your own, asking someone to cosign on the loan with you can help.

Another option: Some smaller banks and credit unions offer credit-builder loans designed to help you establish credit. As with a secured credit card, these loans require you to make a deposit, which you then pay off over six to 24 months. Those payments are reported to the credit bureaus, and you get your deposit back once the loan is paid.

Whatever type of loan or credit you obtain, remember the factors used to calculate your credit score. Be sure to make your payments on time, keep your credit utilization ratio below 30%, and avoid generating too many hard inquiries on your credit report.

You may even be able to build credit and improve your credit score simply by paying bills related to daily living. For example, Experian Boost is a free service that adds your positive cellphone and utility bill payments to your credit file, often instantly improving your FICO® Score.

A Winning Score

Your credit score doesn't start at zero. But no matter where your score stands now, using credit responsibly will help to build a credit history, improve your credit score and keep it as high as possible. Get started by getting a free copy of your credit report. Once you know where you stand, it will be easier to make the right moves to maintain good credit.

How Good Is Your Credit Score?

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