Your credit score is important because it helps lenders determine whether, or not, they should give you a loan.
If you don’t pay back your loans, you’ll get charged interest. And if you borrow too much, you might even go bankrupt.
Your credit score is determined by three main factors: payment history, amount owed and length of time since last debt was paid off.
You can improve your credit score by paying down debts and keeping them current.
The longer you’ve had a good track record of repaying your bills, the higher your score will be.
If you have a lot of debt, you may want to consider consolidating those debts into one large bill that you pay off in full each month.
This strategy will help you build up a positive payment history.
You can also make sure that all of your payments are on-time. Late payments hurt your credit score.
So if you’re having trouble making ends meet, try to budget for extra money, so you can cover any late fees.
The best way to boost your credit score is to keep your balances low.
Lenders look at how long you’ve been carrying a balance as well as what percentage of your total available credit you use.
The lower your utilization rate (the ratio between the total amount you owe compared to your available credit), the better.
To find out more about improving your credit score, check out our article on How To Improve Your Credit Score. But to find out what your credit score starts at, keep on reading!
Table of contents
How Do I Know My Credit Score?
Credit scores are calculated using information from your credit report. You can order a copy of your free credit report online once every 12 months.
What’s a FICO Score?
A FICO score is used to measure an individual’s financial health. It ranges from 300 to 850, with 700 being considered excellent.
Your Credit Score Doesn’t Start at Zero
Many people think their credit score starts at zero. But this isn’t true.
A credit score doesn’t begin at zero until after you’ve accumulated enough negative marks to bring your overall score below a certain threshold.
For example, let’s say you have two accounts that have been delinquent for six months. One account has $1,000 in outstanding debt, while the other has $2,500.
After six months, your credit score would be 680. However, if you were only required to pay off the first account, your credit score would still be 680.
In fact, most credit reporting agencies allow you to dispute inaccurate items on your credit report before they affect your credit score.
Can Someone Else See My Credit Score?
Most major credit bureaus offer access to your credit score through their website. You can view your score for free.
However, some websites charge a fee to search your credit reports. Check out our article on What Is My Credit Score For Free to Is My Free Credit Report Before Buying Access.
How Your Credit Score Is Calculated
There are three main components to calculating your credit score: Payment History, Amount Owed and Length of Time Since Last Debt Was Paid Off.
Payment History – 35%
This component measures whether, or not, you’ve made timely payments on your past obligations. If you’ve paid all of your bills on time, your score will be high.
Amount Owed – 30%
This component looks at how much you owe on your various loans and lines of credit. If you have a lot of unpaid debt, your score will be lowered.
Length of Time Since Last Debt was Paid Off – 25%
If you haven’t paid off your debts in a few years, lenders will assume that you won’t be able to afford it.
a while, lenders may assume that you won’t be able to afford it in the future. This could lead them to consider you less likely to repay your debts.
How Can I Get a Better Credit Score?
If you want to improve your credit score, there are several things you can do.
Get a Secured Card
Secured cards require you to deposit a security deposit when you apply for the card.
When you make monthly payments, the bank uses the money as collateral against any debt you incur.
The advantage of getting a secured card is that it helps build good payment history because you’re paying back what you borrow.
Increase Your Credit Limit
You can increase your credit limit by applying for multiple new credit cards.
Lenders don’t like having too many open accounts, so they’ll usually approve your request if you have a solid reason for wanting more credit.
You should also try to pay down existing balances whenever possible.
The longer you wait to pay off an account, the higher interest rate you’ll end up paying.
Keep Your Balance Low
When you carry a balance, you’ll pay interest every month.
This means that if you carry a large amount of debt, you’ll be paying a lot of interest over the course of a year.
It’s better to keep your total debt below 40 percent of your available credit.
That way, you’ll avoid paying excessive interest rates.
Don’t Close Unused Credit Accounts
While closing old credit accounts might seem like a quick fix, it actually hurts your credit score.
Closing an account doesn’t mean that you no longer use it; it just means that you aren’t using it anymore.
If you have a number of credit cards that you rarely use, keeping them active will help you build a positive payment history.
Monitor Your Credit Report
You can check your credit report once per year for free from each of the three major bureaus (Equifax, Experian, and TransUnion).
Once you find errors, you’ll need to dispute them with the lender who reported the error.
It’s important to note that lenders typically only correct mistakes on their own reports after receiving a written notice of the problem.
Disputing a mistake isn’t always easy. You’ll need proof of identity and proof that the information is incorrect.
Once you’ve disputed the issue, you’ll need to wait 30 days before the lender receives a response.
If the lender still hasn’t corrected the mistake, you’ll need to contact the credit bureau directly.
If you see something fishy on your credit report, you can file a complaint with one of the three main credit reporting agencies: Equifax, Experian, or TransUnion.
How to Build and Maintain a Good Credit Score
Your credit score is based on how much debt you owe, how long you’ve been paying on those debts, and whether you’ve had past financial troubles.
There are a couple ways to boost your credit score.
Pay Off All of Your Debt
Debt is often considered bad news, but there’s nothing wrong with carrying some debt. In fact, most people do.
However, if you want to improve your credit score, you’ll need to get rid of all of your outstanding debt.
The best way to do this is to make monthly payments toward your highest-interest debt first.
Paying off smaller debts will lower your overall debt load, which in turn will raise your credit score.
In addition, you may qualify for a lower interest rate on any remaining debt.
Improve Your Payment History
One of the easiest ways to boost your credit rating is to keep your current payment schedule consistent.
For example, if you normally pay $100 each month, then you shouldn’t change that pattern.
Instead, try increasing your payments by $50 each month until you’re making full payments.
This will help you establish a good payment record, which will increase your credit score.
Keep Your Balances Low
As mentioned earlier, having too many credit card balances can hurt your credit score.
To maintain a healthy balance between your credit lines and your spending habits, set up automatic bill payments so that you don’t spend more than what you already have available.
If you’re worried about missing a payment, consider setting up an online alert system. These services allow you to receive an email notification when your bills are due.
While these systems won’t prevent late fees, they will let you know when you’re going over your limit.
You can also use a service like Mint to track your spending and budget better.
Conclusion
Improving your credit score doesn’t happen overnight. But it’s not impossible either.
With just a bit of effort, you can build a solid foundation for future success.
Remember, your credit score is just one piece of the puzzle. A strong credit history can only take you so far.
A great credit score is only as valuable as your ability to manage it effectively.
So be sure to work hard to stay out of trouble — and enjoy the rewards!
Frequently Asked Questions
By demonstrating good credit habits, 18-year olds may expect their credit scores to get to around 500 within the first six months. However, poor management of credit may result in significantly lower scores.
If you haven’t yet built a credit history, there’s no information on which to base that calculation, so there’s no score at all. Once you begin to establish a credit history, you might assume that your credit score will start at 300 (the lowest possible FICO® Score☉ ).
The Takeaway. It usually takes a minimum of six months to generate your first credit score. Establishing good or excellent credit takes longer. If you follow the tips above for building good credit and avoid the potential pitfalls, your score should continue to improve.
