Credit score Q&A: “What credit score do you start with?”
Questions related to credit scores are always difficult to answer because companies like FICO don’t reveal every detail of their complex and secretive scoring algorithms.
Credit scores also happen to be very unique from consumer to consumer, with no two alike. Kind of like snowflakes, but less fun.
Minimum Requirement for a Credit Score
- There are minimum requirements needed to generate a FICO score
- You need at least one credit account that is 6+ months old
- And some reported activity on that account within the past six months
- This explains why not all consumers have credit scores on file
First off, it’s worth noting that you won’t even have a credit score unless you’ve got enough information on your credit report to generate one.
By enough information, I mean at least one credit account that has been open for six months or longer.
And that account must have been reported to the credit bureaus within the past six months. At least that’s what it takes to generate a FICO score.
With regard to what a credit account is, think a credit card, an auto loan, a student loan, a mortgage, and so on.
Things like cell phone bills or utilities may not be enough to generate a credit score, though they are beginning to factor in more these days.
Without that, you probably won’t even have a credit score. And there are millions of people out there with so-called “thin credit” that don’t have credit scores. So it’s not out of the ordinary.
Your Score(s) Will Be Determined By Any Credit History You Have
- Whether you have a single account or years of credit history
- Your score(s) will be dictated by what’s on your credit report
- If it’s all positive, expect a good credit score and vice versa
- Just note that a thin file could mean a slightly lower score all else being equal, and a more erratic one since you haven’t really proven yourself
Now assuming you do have the bare minimum credit history to generate a credit score, your score will be determined by the open and active account(s).
However, it’s hard to say whether it’ll be above 800 or just above 700 – that will depend on a number of different factors, some that FICO and the other credit score creators don’t really make clear.
The only real clue comes from a FICO study, which revealed that after one year, the median FICO score of a sample of “new-to-credit” consumers was 659, compared to the national median of 713.
So individuals who only had about a year of credit history were scoring a little more than 50 points below more seasoned credit consumers.
Oh, and more than half (50.1%) of these thin credit consumers started their history with a credit card (do you need a credit card to build credit?).
In other words, the cards might be stacked against you somewhat to start, like everything else in the world.
Credit Scores Mean Little Without Credit History
- While an excellent credit score is seemingly great on the surface
- If you don’t have much history behind it lenders may not extend you new credit or the top credit card offers
- Because a lack of negative history isn’t good enough to judge you by
- They need to see that you’ve been a good borrower over time (not just for a few months)
Regardless of your three-digit number, without much credit history, a credit score means very little.
In other words, that number (aka YOU) needs to prove itself before credit card issuers and lenders give you any, ahem, credit.
Think of it this way. If someone you knew wanted to borrow $1,000, and had proven in the past that they paid one other person back after borrowing a paltry $20, would you trust them?
Sure, they never slipped up, but they didn’t prove a whole lot either. Creditors look at things in a similar fashion.
For example, mortgage lenders typically require three open credit lines with two years of history on each.
Yes, it’s a tougher rule, but we’re also talking about hundreds of thousands of dollars borrowed in many cases.
Without that requirement met, even your so-called excellent credit score may be deemed useless.
In conclusion, don’t concern yourself with the credit score you start with – focus on it long term, and make sure you take the right measures to keep it high.
This includes the basics like making on-time payments, keeping outstanding balances low, and applying for new credit sparingly.