What Is My Credit Score When I Turn 18?
Understand the foundations of credit and how to establish your financial standing as a young adult. Learn what shapes your credit and how to build it effectively.
A credit score serves as a numerical summary of an individual’s credit risk, predicting the likelihood of repaying borrowed money on time. This three-digit number, typically ranging from 300 to 850, plays a significant role in various financial decisions, including approvals for mortgages, auto loans, and credit cards. A higher score generally indicates a lower risk to lenders, often leading to better interest rates and more favorable loan terms.
Understanding and building a positive credit history is an important aspect of financial life. It influences loan and credit card applications, as well as tenant screening or insurance rates. Establishing a credit history and a credit score is a process that begins with financial activity, rather than automatically appearing at a specific age.
What a Credit Score Is
A credit score is generated from information in credit reports, which are comprehensive records of an individual’s credit activities. When an individual turns 18, they do not automatically receive a credit score; a credit history must first be established through the use of credit products.
Credit reports are compiled by three nationwide credit reporting agencies: Equifax, Experian, and TransUnion. These bureaus collect data from lenders regarding an individual’s borrowing and repayment behaviors. The data in these reports, such as active accounts, total debt levels, and repayment history, are then used by scoring models to produce a credit score. Because different scoring models may use varying data points or weigh factors differently, an individual may have multiple credit scores depending on the source and calculation method.
How Credit Scores Are Determined
Credit scores are determined by analyzing various factors within an individual’s credit report. While the precise algorithms are proprietary, two common scoring models, FICO and VantageScore, consider similar categories of information. These models evaluate aspects such as payment history, the amount of debt owed, the length of credit history, new credit applications, and the mix of credit accounts.
Payment history is typically the most significant factor, often accounting for approximately 35% of a FICO Score. The amounts owed, including credit utilization (the percentage of available credit being used), usually contribute around 30% to the FICO Score. The length of one’s credit history, reflecting how long accounts have been open, generally makes up about 15% of the score. New credit inquiries and recently opened accounts typically account for 10% of the score, while the diversity of credit types (e.g., credit cards, installment loans) also contributes approximately 10%. VantageScore models weigh these factors similarly, with payment history being “extremely influential” and credit utilization “highly influential.”
Building Your Credit History
Establishing a credit history at 18 involves strategies to demonstrate responsible financial behavior to lenders. One common method is obtaining a secured credit card, which requires a cash deposit as collateral that often becomes the credit limit. This deposit reduces the risk for the lender, making it easier for individuals with no credit history to qualify, and consistent on-time payments help build a positive record.
Becoming an authorized user on a trusted adult’s credit card account can also contribute to building credit, provided the primary account holder manages the account responsibly. The positive payment history of the primary user may then be reported to credit bureaus under the authorized user’s name. It is important to confirm that the card issuer reports authorized user activity to the credit bureaus for this strategy to be effective.
Student loans can also play a role in developing a credit history once repayment begins. Making timely payments on these loans helps establish a positive payment record, and they can also diversify an individual’s credit mix. Another option is a credit-builder loan, where the loan amount is often held in a savings account while the borrower makes regular payments, and the funds are released once the loan is paid off. Installment loans can also help establish a payment history and contribute to a healthy credit mix. For any credit product, timely payments are paramount, as payment history is the most impactful factor in credit scoring.
Checking Your Credit Score
Accessing your credit score is a procedural step that can be done through various avenues, often at no cost. Many credit card companies, banks, and online financial services provide free credit scores to their customers as a benefit. These services typically offer scores based on information from one or more of the major credit bureaus.
It is important to distinguish between checking a credit score and obtaining a credit report. While a credit score is a numerical snapshot of credit risk, a credit report provides detailed information about an individual’s credit accounts and payment history. Consumers can get a free copy of their credit report from each of the three nationwide credit bureaus (Equifax, Experian, and TransUnion) once every 12 months, accessible through AnnualCreditReport.com. Checking your own credit score, often referred to as a “soft inquiry,” does not negatively impact your score.
Understanding Your Score Range
Understanding what a credit score signifies is important for financial planning. Credit scores typically range from 300 to 850, with higher scores indicating lower credit risk to lenders. While exact ranges can vary slightly between scoring models like FICO and VantageScore, general categories are widely recognized.
A FICO Score between 670 and 739 is generally considered “Good,” while scores from 740 to 799 are “Very Good,” and 800 to 850 are “Exceptional.” Scores in the “Fair” range typically fall between 580 and 669, and those below 580 are often categorized as “Poor.” These ranges broadly indicate an individual’s likelihood of loan approval and the interest rates they might receive; higher scores generally lead to more favorable terms and better access to financial products.