A common misconception comes with turning 18: You can automatically start borrowing money on your own. Wrong. While you are targeted by credit card issuers all wanting to take advantage of your newly found adulthood, you are unable to take out a loan. At least, not without a cosigner. Why is this? The answer is fairly straightforward, really. It’s all thanks to a lack of credit and data. So, what is the starting credit score?
The Starting Credit Score
Credit does not automatically appear on our records; we have to put it there. Until we put borrowing data on our records, we have no credit, credit reporting company Experian explains. Thus, the starting credit score when entering adulthood is non-existent. This is not the same, though, as having a zero or bad credit score. It essentially means there is no record or data on which to base your repayment capabilities. Credit.com goes on to explain that your score does not event start at 0. For most companies, the scoring range goes from 300 to 850, with 300 being the worst or lowest.
So, if we start with no credit, how can we build it up?
How to Build Your Credit Score
There are a few ways to grow and develop your credit score. As annoying as the multiple direct mailers from credit card companies may be, credit cards can be a great tool to build that score. But, don’t just pick any credit card. Make sure to research interest rates (especially on retail credit cards), terms and conditions, and more before signing off on that plastic. When starting from scratch, a secure credit card may be the best option for you. Many carriers like Visa and Mastercard do have secured options. Likewise, if you’re in college, look into student credit card choices. You just need to shop around for the perfect one for you and your situation.
Another way to take your score from nothing to something would be a credit-builder loan, which are smaller loans that do exactly what it sounds like: build your credit. You can also have someone co-sign with you on a loan. Once you start making repayments on the loan, you will start developing that “data” discussed previously in this article. It will take about six months of consistent and positive reimbursements for your numbers to start to appear on reports.
Tips on Keeping Your Credit Score Positive
Once you build your credit, you need to then continuously and simultaneously make an effort to keep it positive. Having a higher rating will provide you with more opportunities to request borrowed money when necessary (like when buying a home), unlike the situation when you have a starting credit score. Here are few quick tips on keeping your rank in the green:
- Automate your payments. Arrange for your credit card(s) to take a fixed amount from your bank account each month to go toward your balances. This not only prevents a missed payment, it helps to show companies you are financially capable and responsible, which will boost your credit rating.
- Monitor your credit report. Request your credit report regularly to keep yourself aware of your report and changes that may have recently occurred. If you notice it is not where you would like it to be, you can start making a conscious effort to improve it.
- Pay your bills on time. Avoid making late payments not just on your card balance but your household bills as well. If you get behind on your electric bill, the utility company can file a claim against you, which would hurt your score. This may seem like a no-brainer, but this is a common cause for poor credit.
- Talk to the companies. We all go through hard times, and sometimes, our finances can be unforgiving. However, most people don’t realize that by simply informing bill collectors of your circumstance, you may be able to lower your payment amounts temporarily until your situation improves. This helps to lessen the blow to your credit score while you work on getting back on your feet.
Even though the starting credit score is non-existent, it is far from impossible to grow it. Everyone builds theirs at a different pace. As long as you still make wise decisions, stick with a budget, and remember that borrowed money needs to be repaid in a timely manner, you will be well on your way to a higher credit rating.
What problems did you face when you first started signing up for loans, and how did you overcome them?