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What Credit Score Do You Start Off With?

Adrian Zee

Jan 20, 2022 6 min read

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What's my starting credit score?
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    Credit scores don't start at zero. Instead, your credit score simply doesn't exist when you’re younger. It's only calculated once you have at least 6 months of established credit history recorded on your credit report. This could be when you have your first cell phone plan or when you start using your first credit card.  

    After beginning your credit journey and establishing enough of a credit history, you’ll receive a score ranging from 300 to 900 in Canada. Credit scores in Canada fall into one of five main ranges:

    • Excellent: 741-900

    • Good: 713-740

    • Fair: 660-712

    • Below Average: 575-659

    • Poor: 300-574

    A strong credit score means you’ll have a higher chance of obtaining a loan or credit approval at favourable rates. Lenders like looking at a borrower’s past behaviour to assess risk. Your credit score is evidence to lenders that you consistently make payments on time and that you're familiar with responsible credit use. 

    However, having a credit score under 660 can make it more difficult if you’re searching for the lowest credit card rates and the most ideal loan terms. Some lenders and landlords see scores under 575 as "poor" and may even deny loans or reject rental applications from these individuals. 

    What Should I Expect While New to Credit?

    Those new to credit can expect a more challenging time obtaining loans and other credit products, at least at first. Any available credit often boasts higher interest rates if you lack credit history. 

    Without a well-established credit history, lenders see you as a risk — they have little to no evidence that you can pay back a loan. That's why lenders might deny loans to those new to credit or charge a high-interest rate to account for the potential risks. 

    A lender may also provide a loan to a credit newbie with conditions. For example, the loan could require a cosigner, who'd become responsible for repayments if the borrower defaults or refuses to pay. 

    A loan secured with a home, car, or other property is another option that makes loans to credit novices possible. 

    How is My Credit Score Calculated?

    Credit bureaus like Equifax and TransUnion determine your credit score based on financial information recorded on your credit report. Each bureau has slightly different access to information and might use varied calculation formulas; however, credit bureaus mainly focus on the same five factors: 

    • Payment History (35%): Your payment history contributes the most to your credit score. Lenders want to know that you can make repayments on-time, and they also want to know whether you’ve missed payments or how often you've been late. Even one overlooked or late payment can hurt your credit score a lot. 

    • Credit Utilization (30%): Your credit utilization rate is the percentage of the credit you use over your available credit. For example, if you currently use $1,000 from a line of credit and have a total of $10,000 available amongst all your credit products, your utilization rate is 10%. Keeping this percentage under 30% shows healthy credit usage. 

    • Credit History (15%): The longer you've had credit products, the older and better your credit history. That's why you shouldn't cancel old credit cards, even if you don't use them anymore. Your older cards lengthen your average credit age, and cancelling them would then reduce the average age and possibly lower your credit score. 

    • Credit Mix (10%): Variety is good, and lenders prefer borrowers with experience beyond a credit card. Adding an auto loan or mortgage can often boost your credit nicely. 

    • Credit inquiries (10%): Checking your credit with tools like Borrowell won't hurt your score. But, hard inquiries, which are common when applying for new credit or even a rental unit, could temporarily bump you down a few points. Thus, limiting the number of hard inquiries your score faces is ideal. 

    How Can I Check my Credit Score?

    Borrowell lets you regularly check your credit score for free. It doesn't create a hard inquiry, meaning your credit score is safe anytime you take a look. 

    Regularly checking your credit score lets you see how much you've improved. Regular credit report checks also allow you to keep tabs on any issues that may hurt your score, like an unnoticed late payment or identity theft. 

    What Does Insufficient Credit History Mean?

    Insufficient credit history means your credit profile isn't old enough to satisfy a particular lender's requirements. Often, just getting a credit card isn't enough to build the credit required for other loans. It takes time and consistent card use (and making your regular payments on time!) to build enough credit history.

    Some lenders might accept proof of consistent rent payments from your landlord in place of long credit history. 

    You can also build your credit with strategies like a secured credit card or a credit builder loan.

    A secured credit card is slightly different from an unsecured credit card. requires a deposit -- usually your credit limit. You still make monthly payments, but this method lets you build credit even if you're not eligible for an unsecured credit card. 

    To improve your score, the credit card company reports your on-time payments to the credit bureaus. After a period of consistent payment, they may transition you to an unsecured credit card. 

    Some banks and credit unions offer credit builder loans designed to help establish credit. It's similar to a secured credit card and requires a deposit. You then pay off that amount over six to 24 months, and your credit score reflects these payments. The deposit is repaid to you once you repay the loan. 

    How Can I Build a Good Credit Score?

    People usually start building credit with a credit card. Credit card companies understand everyone needs to start somewhere, so they commonly issue cards with a $500 to $1,000 limit for those with no credit history. 

    If you already have credit cards, it's vital to manage them responsibly. Habits like paying your bills on time and keeping your credit utilization ratio low go a long way to improving your score. 

    Making on-time repayments towards a loan can also contribute to a strong credit score. For example, repaying your student loans is one of the easiest ways to build credit. Applying for a car loan and repaying it over time is another path to demonstrate that you're responsible. 

    How Long Does It Take to Build Good Credit from Scratch?

    Building a credit from scratch usually takes a minimum of six months. This is the amount of time credit bureaus need to have enough information about your behaviour to generate a score.

    Thus, you can't build a perfect credit score overnight — no matter how many strategies or credit secrets you deploy. One of the most vital ingredients is patience and time. 

    During the initial six months, it's essential to avoid bad habits, like late payments or a high utilization rate, that could send your credit on a negative tailspin. Responsible credit card use is generally the fastest way to establish your credit — a low credit utilization and good credit mix also help. 

    However, don't get ahead of yourself with the lowest credit utilization and most vibrant credit mix. Applying for too many loans and products can lead to multiple hard inquiries on your report and cause it to drop in the short term. Focus first on making your regular bill payments and credit repayments on time.

    The Bottom Line

    Although your credit doesn't start at zero, you can't build it overnight. You still need at least six months of credit experience to show bureaus that you're responsible with a loan or card. The way to do this is with consistent and timely credit card or loan payments. 

    Your score also depends on your credit utilization rate, credit history length, credit mix, and recent inquiries. 

    Strategies like using a secured credit card, a credit builder loan, or another credit building program could also help build your credit score if you have poor payment history or no credit history at all. 

    Adrian Zee
    Adrian Zee

    Adrian is a judicial law clerk and personal finance writer who breaks down complex personal finance topics into easy-to-consume articles. His work has been featured in the National Post and Apollo Magazine, along with other publications.

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