Question of the Day: What will your credit score be after your first six months of making on-time payments?
Answer: About 500
Students often wonder if you start high (850) and go down or start low (300) and go up. The answer is that you start with no score and only after 3-6 months will you receive a score.
- Why do you think the score is so low after 6 months?
- Imagine you are lending money to a stranger and they were making monthly payments to you to pay off that debt. How long into a 5 year loan would you feel comfortable that they were going to pay you back in full?
- Do you think you could get an auto loan with a credit score of 500? Why or why not?
Behind the numbers (from Discover):
Things become even more complicated when you learn that, even with a perfect payment history for the first six months of your credit report, you’re probably only going to have a credit score around 500. That’s because, even though the credit reporting bureaus now have enough information to score you, they still don’t have a lot of information to work with. What the credit reporting bureaus want to see is a longer credit history.
Here's a teacher (and student) favorite activity in the Managing Credit unit, Interactive: FICO Score Simulation, where students will have opportunity to see what factors impact a credit score.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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