What Credit Score Does Everyone Start With?

What is a Credit Score?

Starting with the basics – a credit score is a number that ranges from 300-850 based on your credit history (number of open accounts, levels of debt, and repayment history) that determines someone’s creditworthiness – the higher the score the more trustworthy you are perceived by lenders or, in the rental business, a landlord. By utilizing this data based on your consumer report, your credit score acts as a predictor of whether or not you will be delinquent in the future and if you pay all of your expenses – including rent.  

Before a person has anything on their record to analyze, they simply have no credit score. There is no magical age at which a credit score is given to you – a credit score is created only when there is data to analyze. Everyone begins without a credit score and it will require six months of history in order to create a person’s first credit score. 

What Affects Your First Credit Score

When someone is building their credit, there are a few situations that might determine what their credit score will be – it’s important to make sure you understand certain situations when you are looking at applicants with fresh credit scores.  

1: Short History and Few Accounts

If someone only has one account open, that means they have a short history to pull data from. This means they will most likely have a relatively low credit score. Even if they have been making payments on time and have no negative behavior, they may pull a mid-range score because there is insufficient data to project a higher number. Essentially, there is uncertainty someone will keep paying on time when there has only been a short amount of time to analyze their behavior.

2: Short History and Poor Payments

If someone starts their credit history with missed payments or other negative factors, they can start with an extremely low score. With a short history and missed payments, the forecast of how that consumer will behave moving forward is considered negative.

3: Young Age and High Credit Score

If an applicant is young and has a high credit score, it might seem suspicious. However, usually, this means they were an authorized user on an adult’s credit card account. Parents often add their teenage children as an authorized user, meaning they receive a credit card with their name on it, for emergencies or other expenses. Authorized cardholders aren’t responsible for the repayment of debts and don’t have other privileges as the primary cardholder does. But, if the primary cardholder is consistent with repayments then it can help establish good credit for the authorized user at a very young age.

How to Handle Young Credit Scores

More often than not, the question of a starting credit score comes when landlords are dealing with younger applicants – especially if you rent in a college town. Young applicants haven’t had time to build their credit unless they were an authorized user on an account, and often, even if they haven’t done anything negative to their credit score, they simply do not have one for you to inspect.

As a landlord, when you are screening tenants it can be difficult to determine if someone who is young and has a new or non-existent credit score will be a reliable tenant. Credit scores aid landlords because they are often a good indicator of how responsible someone is with paying their bills, and in turn, paying rent. Even if someone has a middle-of-the-road credit score because they just started building their credit, it doesn’t mean they are irresponsible or will be a terrible tenant – it is simply too early to tell via a number.

The best way to handle new credit scores or non-existent scores is to ask for a co-signer. This method is often employed by those renting to college populations. When you ask for a co-signer, screen the co-signer the same way you would a tenant – you could also charge a larger security deposit. Similar to a co-signer, but lacking the rights of a co-signer to live in the rental, a guarantor is another great option for protecting your investment.

As a final measure of taking on a tenant with new or non-existent credit scores, you can offer Rent Reporting, a credit-building service that tenants can utilize when you, the landlord, collect rent online through TurboTenant. Not only will this help your tenant build their credit but it also incentivizes on-time rent payments.

Tips for Landlords When it Comes to Tenant Credit Scores

When it comes to running a credit check, here are a few things landlords need to remember:

• Before you run a tenant credit check, make sure to be transparent and let them know you require it for every applicant – if they object it could be a red flag.
• Decide how you will cover the cost – most landlords include it in the rental application fee.
• Once you receive their rental application and consent, ensure you also run a complete tenant background check in addition to the credit check.
• Use a secure system to run a credit check as you will need to collect sensitive information: name, social security number, and date of birth.
• The general rule of thumb for landlords is to accept a score of 560-850 and potentially even 538-559.

Tips for Renters on How to Build A Good Credit Score

If renters ask you how they can build their credit score to be considered as a tenant, make sure you tell them how they can educate themselves and follow a few simple steps:

• Always pay your bills on time.
• Keep your balances low on your credit cards.
• Don’t open accounts just to have more of a credit mix. 
• Always check your report so you can dispute any inaccuracies.
• Consider signing with a co-signer while renting with a low credit score. 
• Utilize rent reporting services to build credit history like TurboTenant’s
  Rent Reporting.

Remember that no credit score exists until there is six months of data on a consumer’s report. Running a credit check and thorough tenant screening is your best insurance as a landlord to protect your rental business.