woman on phone confused with credit score

The world of credit can be sometimes very much confusing and intimidating especially when you are first starting off with it. If you have just started to build your personal finances, you might wonder how a credit score is calculated, what it means, and what’s bad and good about it. Remember before a person has any financial information that can be analyzed, he or she simply has no credit score. To be honest there isn’t any sort of magical age in which a credit score is given to you. A credit score can only be created if there is essential data to analyze. Every person in the country begins without any such credit score and it requires at least six months of credit history in order to create a person’s first credit. Read on to know more about what credit score do you start with.

What Credit Score Do You Start With And What Credit Actually Means?

Credit in general can be termed as an agreement that the customer has with the lender in order to obtain certain services or goods that can be paid at a much later date based on agreed certain terms. Credit also shows refers to your previous credit history, which a lender takes into consideration while determining your eligibility to get a credit card, loan, or any other similar sort of product. In order to improve your overall chances of being approved for any sort of credit at low-interest rates, it is essential to have a good credit history. Remember a great credit score can only be achieved by paying all your monthly bills on time and by having a mix of loans and credit cards.

When Is Your First Credit Score Created?

Remember your credit score won’t just appear once you are old enough for getting credit. You need to actually have a credit line in your name in order to start generating one.  You may open a credit line with your first credit card. You may start a credit line by having rent payments reported to credit bureaus.  At that time your score starts to be calculated. This usually happens within the first six months of establishing a credit line.

Much dissimilar to a general belief, your credit score never starts off at zero. The lowest possible credit score starts at around 300, which is very much unlikely to happen. Remember a factor that can negatively impact your credit score when you first establish credit is the short length of your credit history.  However, this can be easily taken care of after the smart management of money for a few years.

What Credit Score To Start With And What Is Considered To Be A Great Credit Score?

Remember most of the major credit models usually range from around 300 to 850. The highest number usually represents the strongest credit score. However, credit companies like TransUnion or Equifax  usually don’t decide what actually constitutes a bad or good score. Credit score is often used to determine a wide variety of items including:

  • Rate of interest charged on a loan.
  • Discounts offered on your existing insurance policy.
  • Whether your credit limit should be increased or decreased.
  • Whether your credit should be approved or how much to be approved.
  • Whether a bank should close a risky account.

What Credit Score Is Considered as Good Or Bad By The Loan Lender?

Remember most of the credit models are slightly different from one another. Here is an example of the most commonly used FICO score system which ranges from 300 to 850.

  • 300-599: Considered as bad credit.
  • 600-649: Considered as poor credit.
  • 650-699: Considered as fair credit.
  • 700-749: Considered as good credit.
  • 750-850: Considered as an excellent credit.

Always remember that this system is relative in nature. Something that one lender considers as an unacceptable score, might be considered acceptable by another. Most of the big mortgages like home loans require minimum credit of 620. In case you want to apply for a low-interest credit card, lenders might not accept a score below 700.

What Credit Score To Start With: Key Factors That Might Influence Credit Score

There are a range of factors that can influence your overall credit score. Knowing all the items  that come into play while calculating your credit score can certainly help in making better financial choices and can even boost your overall credit over time. Here are some of the basic but essential components of a smart credit score according to FICO.

  • Payment History Of Creditors (35%): Most of the creditors always want to know if all your credit bills are paid on time. In case there is a delay of thirty or more days, in paying your credit bills, a negative mark is added and it remains there for the next seven years. It is a very important factor that can hurt your credit score.
  • Credit Mix (10%): It is always a good idea to maintain a balance of revolving accounts and installments. Most of the creditors are eager to know if you have experience in managing both of them.
  • Length Of Credit History (15%): Customers having years of credit history are always taken into consideration by the creditor’s eyes.
  • Number Of Accounts Owed (30%): This is generally calculated by taking a rough percentage of available credit across all the bank accounts that are used by you every month. It can be a really great idea if this figure can be kept below thirty percent or even lower.
  • Inquiries Made On Credit (10%): Each and every time when you apply for a loan, an inquiry is generated. If you have more credit inquiries, it indicates a strong feeling of financial distress to the creditors and lenders. Apart from that, your credit score takes a small hit, especially if you submit a credit application.

The road to build credit can be winding and long, and getting good credit isn’t something that happens overnight. In case you have any future plans for a credit boost  with the help of your rent payments, try using Credit Rent Boost. Here at Credit Rent Boost, we work hand in hand with homeowners and tenants and report rent payments to credit bureaus such as Equifax and TransUnion every month. With us, you can stay assured about confidentiality and great performance. In order to get answers to all your queries regarding credit check with the help of rent try logging into our website.

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