What makes up your FICO® Score?
There are five categories used to calculate your FICO® Score, each with its own weight in the formula. Your starting credit score depends on your credit behavior in each of the following categories:
- Payment history (35%)
- Amounts owed (30%)
- Credit history length (15%)
- New credit (10%)
- Credit mix (10%)
Payment history
Payment history has the biggest impact on your credit score. On-time payments keep your score high. But a single late payment can drop your credit score dramatically. If you've never missed a payment before, your score could drop by 100 points or more. To earn a high starting score, pay all your outstanding credit bills monthly.
Amounts owed
Your monthly credit balance is almost as important as your payment history. Keeping your balance low keeps your credit score high. But racking up debt -- even if you make timely minimum payments -- can drop your credit score. To earn a high starting score, keep your credit utilization ratio below 30%. In other words, try to pay off your credit card entirely every month.
Credit history length
Since you're just starting out, you are immediately penalized for having a short credit history. This makes it impossible to begin with a perfect score. Don't worry, though. Your score will naturally improve as you prove to FICO that you can establish a strong credit history. (Your "credit history length" is the average of all your accounts.)
New credit
Each time you apply for a new credit card or a loan, your lender performs a hard credit check. One or two is okay, but too many signals to lenders that you are about to take on a bunch of debt. Lenders don't like that. To earn a high starting score, keep your credit cards and loans to one or two. Take your time opening new lines of credit. If possible, spread them out.
Credit mix
You will probably be penalized for having a poor credit mix. Basically, lenders like to see that you can handle a bunch of different credit lines. It shows responsibility. Ideally, you'd have a mix of revolving credit lines (credit cards) and installment loans (mortgages, auto loans, personal loans, etc.). Don't worry about this yet. It has a relatively low impact on your score.
Because FICO calculates credit scores behind the scenes, and there's a lot involved, it's impossible to know exactly what your credit score will start at. For instance, even if you have a perfect payment history, you may start out with average or "fair" credit because you have limited credit history or a poor credit mix.
Don't worry too much. Unless you make some big mistakes in your first six months, you're unlikely to start with a flat-out bad credit score. Start with a high score by making timely payments and keeping usage to a minimum. There are many ways to establish your credit score.
Bottom line: Your starting credit score will be generated after you've established a credit history, and you can apply for a credit card (and get approved) without a score. Keep your account in good condition to pay less for cars, homes, and anything you purchase with borrowed money.