If you’ve ever applied for your first credit card or loan, chances are you hit a confusing, infuriating truth: you don’t have a credit score whatsoever. While the idea of starting with a score of 0 seems to make sense, that’s not what really happens. Knowing what credit score do you start with, and how you start out that way, is your first step to wisely building credit for a lifetime of good financial well-being.
You Don’t Start With a Zero
The truth is that no one begins their financial life with a zero credit score. It is not possible for a credit score from models like FICO and VantageScore to be generated until there is enough of a credit history on file.
What Is the Minimum FICO Score Requirement?
In order to receive a FICO Score, one must have at least one account that is six months or older, and one account that has been reported to the bureaus within six months. With those two basic criteria met, FICO can generate a score for the applicant, typically somewhere in between 300 and 850, far from the highest credit score possible. While it depends on what type of account you have, the majority of individuals first given a FICO score were somewhere in the mid-600s range.
VantageScore Has Varied Thresholds
VantageScore, which is the other prevalent scoring model, will produce a score with as little as one month of credit history. In this respect it is slightly more inclusive to individuals new to credit. Just as with FICO, the score falls between 300-850 and your beginning range is determined by how you treat your new account.
So, what does “credit invisible” mean?
According to the CFPB, roughly 26 million Americans don’t have a credit file with one or more of the three main credit bureaus (Experian, Equifax, and TransUnion). Nearly 19 million others are “unscorable” because their credit file does not have enough recent activity to calculate a score.
Credit invisibility isn’t a penalty, but rather an indication that you haven’t yet begun building your credit history. Starting fresh is something anyone can do relatively easily, and we’ll cover how to do that below.
Your First credit score: how it’s derived
After opening your first credit account and it’s reported to the bureaus, a scoring model assesses How your credit score is calculated:
Understanding these factors can help you make wise decisions while developing your credit.
How to Start Building credit from scratch:
Whether you are credit invisible, or just recently obtained your first (thin) credit score, here is the path that is already proved for thickening your profile and building an established track record:
Secured Credit Cards:
A secured credit card is when you put a deposit down and that becomes your credit limit. Since the lender has nothing to lose, the credit card will give the lender an extremely high chance that you will get approved with no history. If the card is used responsibly, you can create and establish positive payment activity which will then be reported to the credit bureaus.
Credit Builder Loans:
Credit builder loans are typically made to credit invisible people from credit unions and community banks; they usually do not carry interest. You deposit money and the lender holds onto your money for a year while you pay monthly payments, and once the full amount has been paid you will receive the funds. Your payment history will then be reported to credit bureaus to start helping your credit building efforts.
Authorized User:
Being added as an authorized user to a family member’s account will be seen as their credit activity, and could be reported to credit bureaus. The faster way to thicken a credit report quickly-given that the primary user’s credit history is healthy and reliable.
Experian Go & Self-Reporting Tools:
Programs like Experian Go allow people who are credit invisible to begin building credit even without having a credit card. In addition, credit-building services such as Experian Boost and UltraFICO can allow you to pay for utilities, rent and streaming subscriptions to be reported on your behalf to the credit bureaus.
3 Common Myths of Credit Scores to Bust
Myth 1: You begin credit with a credit score of 0.
The fact of the matter is you actually do not have any credit score until you pass the minimum requirements of the credit score model, and no score of 0 means you have a credit score of 0 in any existing model.
Myth 2: Viewing your own score can damage it.
Viewing your own credit score is a soft inquiry, thus, it will not affect your credit score in any way. It is only hard inquiries (when a lender pulls your credit in consideration of granting a loan) that may lower your score by a few points temporarily.
Myth 3: Your credit score is related to your earnings.
There are absolutely no variables on your income when determining your credit score. Someone who has no credit history may have a massive income, and will still be credit invisible, as earnings do not correlate to a credit score.
How Long It Takes to Build a Credit Score?
FICO can give you a score after six months or so of credit usage, and VantageScore after a month or two. Building a score, however, and getting a score are two very different processes, much like understanding why your credit score might drop along the way.
A “good” score (670-739 with FICO) usually takes 1-2 years of consistent, good credit behavior. To reach a “very good” score (740-799) or an “exceptional” one (800+) will typically take longer and involve keeping utilization low, a mixed credit report, and a clean record for many years.
Credit Enhancement Strategies to Strengthen Your Credit File Early On
Once you have an initial score, the following habits should further enhance your credit and build the file over time:
- Always pay all of your bills on time-not just your credit cards, but also utilities, phone, and any subscriptions you have that are reported to the bureaus.
- Keep your credit utilization below 30% across all revolving accounts.
- Don’t close old accounts-age of your credit file positively impacts length of credit history.
- Space out credit application requests so you don’t end up with too many hard inquiries over a short period.
- Check your reports every year at AnnualCreditReport.com to ensure there are no errors.
The Last Word
You don’t begin life with a score of zero; you begin with no score whatsoever. When you open your first account and meet the reporting threshold you will likely begin life in the mid-600’s but your number will fluctuate and individual results vary.
After that you just need to work on getting a more competitive credit score. Building credit does take time and effort but every payment you make on time, every low utilization ratio you maintain, and every financially sound choice you make helps push you into better credit territory. Regardless of if you chose a secured card, a credit builder loan or the authorized user strategy, just start and then keep it up.