Your credit score is one of the most important numbers associated with your name. As such, it's important to know what yours is at all times. But have you ever wondered what your credit score starts at?
Credit scores can only go so low, as the lowest score possible is 300. But not everyone starts with the same score. That said, it is very unlikely for anyone to start out with a score of 300, and it definitely won't be zero.
What dictates these scores, and what kind of score can an average 18-year-old expect to see on their credit report? Let's take a closer look so we can answer these questions and more.
What Credit Score Does an 18 Year Old Start With?
Since your credit score is one of the most important numbers in your life, it's important to know what yours is. If you're like most 18-year-olds, you don't even know how to check your credit report. Don't worry, though, as this is something you will soon discover as being an essential component of your adult life.
Credit scoring companies assign different weights to different factors, including how much people pay their bills on time and whether or not they use too much of their available credit. The higher the number, the better your access to loans and other products for which a bad credit history means denial.
Most 18-year-olds don't have any credit built up since you have to be that old to open an account in your name. Once you do this and start making on-time payments, your credit score will take effect. Therefore, many 18-year-olds initially have no credit score at all.
So how can you improve your credit score and start applying for loans? It all starts with opening an account in your name only—this will be good for two years before it gets reported on your credit report.
Remember, your credit score refers to the information in your credit report. This information can be anything from how you pay your bills to how much debt you owe and the types of accounts you have.
The better your credit, the more likely it is that you'll qualify for financial products like a loan, an apartment, or even a job. As such, you need to do everything possible to keep improving your credit rating.
A credit score, more commonly referred to as a FICO score, is a number that measures the potential risk of lending someone money or giving them a job. If you have a high credit score, it means that you are less likely to default on your loans and make on-time payments.
If you have a low credit score, it means that you will likely have trouble getting approved for loans and other services. In other words, having good credit will help you get ahead with your money and keep your life running smoothly.
Your credit score is important because it can affect how much interest is charged on any loan or card you apply for. For example, if you have a 780 FICO Score and apply for a car loan, the interest rate on the loan would be around 10%.
But if your credit score was 680 instead of 780, the interest rate would be closer to 25%. This simple change in interest rate could save or cost thousands of dollars over time. That's why it's so important to maintain good credit scores throughout your adult life.
What Credit Score Does Everyone Begin With?
Remember, it's impossible for anyone to start out with a credit score of zero. In a worst-case scenario, you just won't have a credit score at all. This would mean that you haven't built up any credit, thus reflecting a non-existent score. So, when you're just starting out, you can expect the following:
- No recorded credit score
- Your credit score begins when you turn 18 and open an account
- You can increase your credit rating by making payments on time
The most important component is taking action to keep your credit rating high. The higher your score, the more likely you are to get approved for loans. As an 18-year-old, you might be focused on getting a car.
But as you get older, you're going to want your own home, among many other things. The only way to ensure this is to make good decisions when you are younger so that your credit score reflects as much when you're older.
How to Improve Credit Scores
There are many things you can do to improve your credit score. The easiest way is for someone with good credit to add you as an authorized user on their account. This will give you the opportunity to start building your score back up.
You can also check your credit report, which you can do via many resources online. You need to know what's on it so that you can work with someone who can help fix any mistakes or errors on it like incorrectly marked missed payments or outdated information.
Let's look at some other ways you can effectively improve your credit score, from making timely payments to keeping your credit card balances in check.
Paying on Time
Paying on time is one of the most important things you can do to maintain a good credit score. Some banks and lenders will let you set up automatic payments, which makes it easier for you to consistently pay on time.
However, if your bank doesn't offer this feature, you should consider setting up an automatic payment online through your bank's website. If paying online isn't an option for you, consider setting up recurring payments with a bill-paying service or by scheduling recurring deposits to your checking account. This ensures that your bills are always paid on time, which results in a better credit score.
Keeping Your Credit Utilization Low
One of the most important habits you can form is to keep your credit utilization low. Credit utilization is how much of your available credit you're using. If you have a credit card with a credit limit of $5,000 and you owe $3,500 on it, then your credit utilization is 70%.
The rule of thumb for good credit usage is to keep your total balance owed at less than 30% of your total available limit. When it comes to healthy debt management, this means that if you're paying off debt responsibly and staying below 30% of your available limit, then you're doing the right thing.
That way, you'll reduce the risk that will impede future borrowing options or increase rates dramatically down the line.
Staying on Top of Your Credit Card Balances
One of the best ways to maintain a high credit score is to make sure your monthly credit card balances are as low as possible. This means not spending more than you have available on your card and paying off the balance every month.
It's a good idea to set up text or email notifications that will let you know when your balance is getting too high. If this happens, you can take action right away and avoid being charged any interest for going over your limit.
Related post: How To Get The Highest Credit Score Possible?
How to Boost Your Credit Rating in 3 Simple Steps
When it comes down to it, making wise financial decisions will go a long way in ensuring a positive credit rating. To help keep your credit strong, follow these simple steps:
- Payback your debts
- Make your monthly payments on time
- Increase your credit limit
Being responsible with your spending applies to all of the above steps and can help improve your credit rating. It takes diligence and a commitment to staying out of debt. In doing so, you will be prepared for the future.
How Are Credit Reports Calculated?
Your credit score is generated by calculating the information in your credit report. It's important to know how it's calculated because if you make payments on time, don't miss payments, and only borrow what you can afford to repay with your available funds, you'll have a higher score.
The most important factor in calculating your credit score is the information found in your credit report. This includes whether or not you've defaulted on loan payments, paid off loans ahead of schedule, maxed out your available credit line before applying for more credit, and how long it takes you to pay off loans.
To improve your credit score gradually, it's necessary to have a strong history of paying back debt on time. You can also bolster your credit rating by opening additional lines of credit with lenders who are willing to give you a low-interest rate so that you can use them as an emergency backup if needed.
If you are granted easy access to extra money when needed, it will help increase your chances of being approved for loans in the future without being charged an arm and a leg for interest rates.
While you won't start with a credit rating of zero, you may not have a credit score at all. You can establish a credit score by opening an account in your name and making your monthly payments on time. But you can't do that until you are at least 18 years old.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.