Building credit from scratch doesn’t have to be difficult. The best way to build credit is to open a credit card, preferably one with no annual fee, and use it responsibly. That means paying your bill on time every month or simply locking it in a drawer. Just having an open line of credit that is in good standing will help you build credit.
You can check your credit score for free in less than two minutes on WalletHub, the only site with free daily updates. Just quickly confirm your identity, and you’ll get access to your latest VantageScore 3.0 credit score, based on your TransUnion credit report.
A fair credit score is usually defined as any score in the range of 620-659. Roughly 13.5% of people have fair credit, according to WalletHub data. The average person with fair credit is 47 years old and has an annual income of $54,000 per year.
The highest credit score you can have is 850. That’s the maximum credit score used by all of the most popular credit-scoring models today. While less than 1% of people have that highest possible credit score, according to score providers, far more of us can claim to have perfect credit.
In order to build a good credit score, you must first establish credit. Establishing credit means beginning your credit history by obtaining a loan or line of credit. That’s all you need to get your first credit report and score. And it’s the first step toward one day qualifying for a decent mortgage, car loan, etc.
The Myth: Many people assume we each have three, and only three, credit scores, one from each major credit bureau: TransUnion, Experian and Equifax. After all, anyone with a Social Security number who’s ever possessed either a credit card or a loan also has a credit report from each of these bureaus. So it would seem only logical for there to be three corresponding credit scores. But that, as it turns out, isn’t true.
Numerous websites, including CreditBoards.com, operate so-called credit-pulls databases. These forums include crowdsourced information about which credit bureaus different issuers check when evaluating applications, what credit scores are needed to obtain various credit cards and the spending limits people are approved for.
The terms “credit report” and “credit score” are often mentioned together, and for good reason. But they’re not quite the same thing. A credit report is a summary of your track record as a borrower. It lists the loans and lines of credit that you’ve used, any collections accounts or tax liens in your name, personally identifying information, and other key info. A credit score is basically a credit report’s contents expressed as a number. In other words, it’s shorthand for what your credit history says about how risky it would be lend money to you.
A soft credit check is the type of credit inquiry, or credit pull, that does not hurt your credit score. Soft credit checks happen when you check your own credit report, for example, as well as when credit card companies pre-screen you for offers. In contrast, hard credit checks can lead to credit score damage, especially when you have many in a short period of time. Hard inquiries happen whenever you apply for a new loan or line of credit.
Credit scores have many enemies — from late payments and collections accounts to tax liens and court judgments. Each takes a toll on your credit standing to varying degrees. And the damage unfortunately comes far faster than any resulting recovery.
Below, you can learn more about what having good credit really means, why it matters, how much money it saves you and more. Just remember that individual lenders have the final say on whether a credit score is good, or at least good enough for approval. So there isn’t one standard definition.
Credit inquiries, which are also known as credit “checks” or ”pulls,” are basically records of someone checking your credit report. But not all credit inquiries are the same. There are two different types: hard inquiries and soft inquiries.
It doesn’t take long to build credit, at least in the sense of building enough credit history for a credit score to be generated. The newest credit scores can produce a rating for anyone with a loan or line of credit. That includes the VantageScore 3.0 credit scores you can get for free from WalletHub. And since creditors report account information to the major credit bureaus on a monthly basis, you can build a credit score in as little as a month.
A credit score is your credit history expressed as a number. You can also think of it as a grade for how responsibly you’ve managed loans, lines of credit and other financial obligations over the years.
Free credit reports are available from several sources, including WalletHub, which is the first and only website to offer free credit reports and scores that are updated on a daily basis. WalletHub also provides an early-warning system for credit-report changes in the form of 24/7 credit monitoring, plus customized guidance to help you save more money. All you have to do is sign up (it’s 100% free).
But WalletHub isn’t the only place you can get a free credit report. The most important alternative is AnnualCreditReport.com, the government-sponsored site where we all can get a copy of each of our three major credit reports every 12 months. While WalletHub provides unlimited access to your full TransUnion credit report, updated daily, you can use AnnualCreditReport.com to review your other two reports from Experian and Equifax. But don’t check both at the same time. Review one of them now, and save the other one for later — say, six months from now. Pulling your Experian and Equifax reports in six-month rotations will help you ensure you’re not missing anything for an extended period of time. Just bear in mind that using only AnnualCreditReport.com would be a mistake, as it would blind you to credit-report changes for much of the year.
A bad credit score is a credit score from 300 to 619, or 639, depending on whom you ask. There’s no universal definition for bad credit for the same reasons there’s no single “real” credit score: Many ways to measure credit exist, and a lot depends on the lender. That said, you probably have a bad credit score if you’ve declared bankruptcy in the last three years or fallen at least 60 days behind on a bill payment in the last nine months. Your odds of having bad credit are also high if you currently have a past-due credit card or loan bill, or your credit cards are maxed out. And no matter what you call it or where you draw the upper limit, you don’t want to be anywhere close to the bad credit section of the credit score range – at least not for long. Not only will a bad credit score make it harder and more expensive to get a loan, but it could also complicate your living situation and even your job options. Fortunately, a bad credit score is not a life sentence. You should be able to go from bad credit to fair credit in 12-18 months, if you’re careful.
Exactly how you should go about repairing your credit and how long that will take depend on how badly damaged your credit is in the first place. So your first order of business should be to check your latest credit score and see where you’re starting from. You can do that for free on WalletHub and get personalized credit improvement advice in the process.
The standard credit score range is 300 to 850. All of the most popular types of credit scores, including VantageScore 3.0 and FICO Score 8, now use that 300-to-850 credit score scale. But that hasn’t always been the case. And some alternate credit score ranges are still in use today.