Contrary to logic, 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 has no credit history, they’re more likely to have no score.
So, for a person just beginning their credit journey, what is the starting credit score? Read on to learn the factors that impact this score from the beginning, and the habits to establish to ensure a better credit score.
How Your Credit Score Is Calculated
There’s no standardized starting credit score. That may be partly due to the factors that influence how a score is calculated. What a person’s done in their young credit history will impact their starting score.
The FICO® Score is widely used in the U.S. to help determine a person’s credit score. This FICO company uses the following to calculate its score:
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 a single late payment can harm a starting credit score.
Credit utilization
The second most important factor in a credit score is credit utilization, which makes up 30% of a person’s score. Credit utilization is the percentage of their available credit a person actually uses. The ideal credit utilization ratio is 30% or under.
Length of credit history
How long someone’s accounts have been open makes up 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.
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Credit mix
Making up 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. Including credit cards and home equity lines of credit (HELOCS).
If an individual can manage different types of credit without late or missed payments, it reflects well on their score.
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New credit
Opening multiple new accounts at a time? This factor accounts for 10% of a credit score. New credit includes “hard inquiries” as well as opening new accounts.
For a person with a starting credit score, they 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.
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What Is a Good First Credit Score?
Unfortunately, a starting credit score won’t be the perfect 850. More likely it’s in the Good (670-739) or Fair credit score (580-669) range.
That’s mostly because of their limited payment history. If a person just opened a credit card or started paying back student loans, the credit bureaus don’t see an established history of timely repayment. Even if the consumer has never missed a payment, payment history is limited.
Similarly, the length of credit history is short, perhaps only a few months, which doesn’t give lenders enough data to judge a consumer as low- or high-risk.
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Ways to Establish Good Credit
While it can be discouraging that a starting credit score is penalized just for being new, it doesn’t take long to build credit with a few simple habits:
• Paying bills on time will continue to be important, as payment history is a major factor in a 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 boost the credit mix.
• Paying bills in full can help keep the credit utilization ratio balanced at 30% or below.
• Not applying for too much at once will avoid the pitfall of too many hard inquiries and new accounts, which can have a negative impact.
While an individual can proactively try to improve their score, a good portion of a credit score comes from paying bills consistently over time.
Establishing good habits, and continuing them, will likely lead to a higher credit score.
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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 qualifications for any of the following:
• Credit cards
• Mortgages
• Rental apartments
• Job applications
• Car loans
• Personal loans
With a low credit score, or no credit score, getting favorable terms or qualifying for anything 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.
Monitoring a credit score is free and easy. Anyone can get their free FICO Score annually from Experian using AnnualCreditReport.com. The site allows visitors three free reports annually, one from each credit bureau.
In addition, credit card companies and lenders often offer free credit score reporting on their portals.
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The Takeaway
Having a starting credit score doesn’t mean starting from zero – or with a perfect 850. Consumers may start at a Fair to Good level. Working to establish healthy credit habits, such as paying bills on time and in full, will raise their credit score. That’s important because the higher your credit score, the more financial opportunities you will have.
SoFi’s money tracker app helps those starting on their credit journey. With free credit monitoring tools, users can track their credit score in real time, with customized insights to help improve their credit.
FAQ
What are the FICO credit score ranges?
FICO® credit scores range from 300 to 850.
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, and utility payments.
What are the differences between FICO, Experian, and Equifax?
Experian and Equifax are credit bureaus that create credit scores and compile credit histories. FICO® creates its own credit score. All three companies provide slightly different credit scoring models.
Photo credit: iStock/blackCAT
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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