What is Everyone’s Starting Credit Score?

wallet-2125548_1280Have you ever thought about what everyone’s starting credit score was before they even started building credit? Unfortunately, I made a mistake at one of my first banks which negatively affected my credit so when I finally checked my score, it was low.

I always thought about what my score was or could have been at the beginning? Does everyone start with 0? Do they give you a few points in good faith? <— Knowing what I know now, I really wish that was true, haha.

In all honesty, everyone starts out at square one with nothing. How you build your credit from then on is up to you.

Starting at 0

I guess you could say that everyone starts with an even 0. When you turn 18, you don’t magically have a credit profile to judge. You start with no credit because you have yet to open any accounts.

On one hand, you should be pleased to start with a clean slate because some people don’t receive that privilege, unfortunately. You should check your credit score and report on sites like CreditKarma, CreditSesame, or AnnualCreditReport.com. It won’t cost anything to check your credit on these sites and it won’t hurt your score (even if it’s nonexistent).

Why would you want to check your credit right off the bat when you expect your score to be 0? You should do this as a precaution to make sure no one else has been using your credit by opening accounts in your name.

Identity theft is super common these days and many minors under the age of 18 fall victim to it due to their clean slate credit score.

You don’t want some random thief to take advantage of your credit before you even get a chance to use it which is why it’s important to check and make sure no one has been misusing your credit first and continue to check it for misuse as time goes on.

Is It Better to Have No Credit Score or Bad Credit?

Starting out with no credit can seem like an uphill battle if you want to open your first account and build your score. On the other hand, having bad credit is not a good thing, but actually shows that you have some credit history and experience. So, which one is better?

There are many theories that suggest it’s better to have no credit than bad credit and I agree. Personally, I started out with bad credit due to my banking mistake and it made things so much more difficult.

If you start with no credit, that means you still have a chance to prove yourself to lenders. Having bad credit right off the bad because you didn’t pay something will make it that much harder for lenders and creditors to be able to trust you again.

You may have to start building that trust with high-interest rates and bad credit card and loan terms which will cause you to spend more money.

How to Start Moving Away From Having No Score

You can start developing your credit score once you turn 18. When you turn 18, the government supplies agencies with your social security number then the agencies obtain information when lenders supply them with new borrowing account information.

The three common credit bureaus are TransUnion, Equifax, and Experian. Each bureau may have a different score for you once you start building your credit and that’s okay.

Your credit score is intended to analyze historical behavior found on your consumer credit report. It communicates to lenders the likelihood of you either paying back a loan or being delinquent on it.

How to Get a Lender to Take the First Step

Building your credit is really a catch-22. Lenders are reluctant to loan you money because you have no score to begin with but, you need to open at least one account to start building your credit.

One of the best ways to start building your credit is by getting a credit card and using it wisely.

Usually, when you turn 18, you’ll start to receive credit card offers in the mail and can choose which one sounds right for you. Credit card companies will generally give you a limit that you can spend up to.

It’s important not to utilize (spend) more than 30% of your credit limit at any given time because this can actually hurt your score. So if your credit limit is $1,000, you should spend the whole amount. Instead, only spend up to $300.

Also, make sure you pay your credit card bill on time each month and try to pay it in full. If you miss your minimum payments, you’ll be charged a late fee and it can also hurt your score and demonstrate to new potential lenders that you can’t be trusted to pay your bills on-time.

When it comes to paying off your balance in full each month, this is the best practice to avoid having to pay interest. Even if you make your minimum payments each month, you’ll still be expected to pay interest on the remaining balance which is why it’s best to just pay it all off at once.

Credit cards are a tool used to build your credit. They should not be used as ‘free money’ or a cash advance and you should only spend what you can afford to pay back.

If for some reason, you don’t qualify for a traditional credit card in order to build your credit, this is no uncommon. There are secured credit cards that you can try out first which will help you build your credit.

Secured credit cards can be used just like normal credit cards but they are backed by a security deposit you put down. For example, if your credit limit is $300, you need to put a deposit of $300 down and borrow against it.

The great thing about secured credit cards is that they often report to all three major credit bureaus so you can build your credit and some cards will even increase your limit after a few months of positive payment history.

The Discover it secured credit cards is one of the best secured cards to start out with.

Other Ways to Build Your Credit

If you don’t want to get a credit card or can’t get one, there are a few other ways to build your credit from 0.

Get a cosigner on a loan- If you need to take out a loan, it’s going to be nearly impossible with no credit. However, you can ask someone you know and trust like a parent or relative to cosign for you. Their credit history will be used to obtain your loan and they will be responsible should you fail to make payments.

Get a credit builder loan – Credit builder loans allow you to loan money to yourself via your bank in order to build your credit. Let’s say you take out a loan for $1,000. You’ll be asked to pay back the $1,000 in installment payments for a few months while you bank places the money into an interest-bearing account. Once you’ve paid back the loan, you can borrow against it as a line of credit.

Federal student loans – Federal student loans do go on your credit report and you don’t need to have credit to obtain them. However, you can’t really build your credit with federal student loans until you start paying them back.

Realizing that everyone’s starting score should be the same should put your mind at ease, you’ll it will be an uphill journey to build your credit score.

How did you build your credit score from the ground up?

Posted in: Credit and Debt

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