Working your way up to a good credit score when you don’t have a score in the first place may seem like an eternity, but it doesn’t have to feel this way if you know what the future entails.
When you receive your first line of credit, whether it’s a student loan or maybe even a student credit card, you will start to build your credit as you start to use it, but your score won’t increase overnight, making it tough to get approved for a credit card that requires good credit.
While your score will eventually get into the “good” scoring zone, it’s important to know how the process works.
Understanding Credit Scores
There are two main types of credit scoring systems: FICO and VantageScore. VantageScore is able to produce a credit score within 60 days, while FICO can take a bit longer, oftentimes taking longer than six months to produce a score.
Once you have used your card for at least six months and make your payments on time, your creditors will report this activity to the credit bureaus, creating a score using a formula.
At this time, don’t be surprised if your score isn’t high just yet as you’re still new to the game. Think about it for a second: If you were to meet someone for the first time, would you trust this person alone with your child after knowing them for three to six months? The same can be said about your score. The longer you pay your bills on time and prove yourself, the higher your score will be.
How to Help Your Score Now
Even though your score may be limited, there are some things you can do right now to help give it that much-needed boost:
- Take Advantage of Your Parents
If your parents have a great credit score, simply ask them if they can add you as an authorized user to their accounts, but before doing so, make sure this credit card reports the authorized users to the credit bureaus. Being an authorized user allows you piggyback on your parents, taking advantage of their credit history and help diversify your credit report.
- Learn How Your Credit Score Is Calculated
If you’re new to the credit card game, take the time to learn how the credit scoring system works. It’s not as hard as you think.
According to Duke University, the credit scoring formula is calculated taking the following factors into account: your payment history, the amounts owed, your credit history length, if new credit accounts have been opened recently and the types of credit you have opened. Combining these factors one by one will be able to create a FICO credit score.
- Never Be Late
Building your credit score is a lot like building a house; it isn’t going to be done overnight and will take a lot of patience. While it can be exhausting to get an update every month and only see it go up a few points, do keep in mind it will eventually be in what’s considered the “good” scoring range. Once there, it will stay this way forever as long as you pay your bills on time and keep your debt to income ratio low. The key here is “pay your bills on time.” As long as you pay your bills on time, even if it’s just the monthly minimum, this can help your score grow over time. If you were to just miss one payment and it was reported, then you could be back to where you started on day one.
Age Matters in the End
Younger borrowers and newcomers to credit often have one thing lacking: longevity. According to Wayne State University, older borrowers will often have the best scores, thanks to their longer credit histories and lower utilization rates.
If you signed up for your first credit card, don’t expect an 810 credit score next week or next month no matter how hard you work at it.
Instead of getting frustrated with this idea, take these tips to heart to understand that building credit is a long-term goal and with enough patience, you can be like those old timers, being approved for just about any credit card you apply for.