Understanding Credit Scores for 18-Year-Old Americans Without a Credit History
Many individuals, especially those just turning 18, wonder what credit score they should have if they haven't opened a line of credit. This article will explore the nuances of credit scores for first-time credit users, including why a score might be low or non-existent.
Typical Initial Credit Scores for First-Time Credit Users
When someone opens their first line of credit at 18, whether it be a credit card, car loan, or student loan, they will likely start with a relatively low credit score, often in the 600s. This is a common starting point as the individual begins building their credit history.
Interestingly, my personal experience at 18 showed a score of 700 in my first year, which I achieved despite only having the card and not using it for that year. This highlights that the score is not solely based on usage but also on other factors such as the detail and age of your credit history. However, it's important to use your credit to maintain it. For instance, using your card at least every few months can keep the creditor informed that the account is active and valued.
Why a Credit Score Might Be Non-Existential
Until an individual has an active line of credit, they typically have no credit score at all. This is because credit scores are calculated based on an individual's credit history, which includes loan and credit card information. Until you make a purchase or draw on a line of credit, there is no data for credit scoring agencies like FICO to evaluate.
FICO, the most widely used credit scoring model, does not calculate a score unless you have had an active account for at least six months. Therefore, anyone who hasn’t opened a line of credit by 18 will not have a credit score. If you are in this situation, it's important to understand that while a 300 is the minimum possible score, it is virtually impossible to start with such a low score. Your score will likely begin in the 600s once an account is established.
Building Credit for 18-Year-Olds Without a History
Establishing a credit score at 18 can be a bit of a challenge, but there are effective strategies to help jumpstart your credit journey. Here are a few options that can help:
Secured Credit Cards
A secured credit card is a great starting point for those with no credit history. You secure the card by depositing a certain amount of money, which acts as a guarantee. Using this card responsibly and making timely payments can help build your credit score.
Becoming an Authorized User
If you have a trusted family member with a good credit score, you can become an authorized user on their credit card. This can help you build your credit history by leveraging the good standing of the primary account holder.
Using Your Credit Responsibly
Beyond simply building a credit history, it's crucial to use your credit responsibly. This includes making timely payments and keeping your credit utilization low. Credit utilization is the percentage of your available credit that you use each month. It is a significant factor in your credit score, making up about 30% of your score.
Your payment history (35% of your score) is also crucial. Your credit score is determined by how you manage your credit over time, thus establishing a pattern of responsible credit use is key. With time and consistent good habits, you can achieve a credit score in the high 600s or 700s, which is considered an acceptable score.
The journey to a high credit score takes time and effort. By understanding how credit works, you can take the necessary steps to build a solid credit foundation for your future needs.