What Credit Score Do You Start Off With?

A credit score is a numerical summary of an individual’s creditworthiness, typically ranging from 300 to 850. This three-digit number helps lenders assess risk when extending credit. Many assume they start with a score of zero or 300, but individuals actually begin with no credit history, a state often called “credit invisible.” A credit score is not generated until a person engages in credit-related activities reported to major credit bureaus. This initial lack of a score means there isn’t enough information to calculate one.

Establishing Your Credit File

A credit file is a detailed record of how an individual has managed debt over time. It is compiled by the three major nationwide credit bureaus: Experian, Equifax, and TransUnion. These bureaus gather financial data primarily from creditors, including banks, credit card companies, and other lenders, who voluntarily report account information and updates.

A credit file is initiated when a consumer engages in credit-related activities that are reported to these bureaus. This includes opening and using accounts like credit cards or loans. Once an account is opened, creditors transmit data, such as payment history and account balances, to the credit bureaus. This reported activity forms the basis of the credit file, allowing a credit score to be calculated after sufficient information has been collected.

Initial Strategies for Building Credit

For those with no credit history, several strategies can help establish a credit file and generate an initial score. These methods focus on demonstrating responsible financial behavior to creditors and credit bureaus.

• Secured credit cards require a cash deposit as collateral, which typically matches the credit limit. This deposit often ranges from $200 to $3,000, reducing risk for the card issuer. Users make purchases and pay bills, and the card issuer reports this activity to the credit bureaus. Responsible use, including consistent on-time payments, helps build a positive payment history. The deposit is generally refundable when the account is closed in good standing.
• Credit builder loans hold the borrowed amount, often between $300 and $1,000, in a savings account or certificate of deposit. The borrower then makes regular monthly payments, typically over six to 24 months, which are reported to the credit bureaus. Once all payments are completed, the full loan amount is released to the borrower, creating a history of on-time installment payments.
• Becoming an authorized user on an existing credit card account can also contribute to credit building. The authorized user receives a card linked to the primary account holder’s credit line. If the card issuer reports authorized user activity to credit bureaus, the new user can benefit from the primary account holder’s positive payment history and credit utilization. The primary cardholder remains solely responsible for all payments.
• Small installment loans involve borrowing a fixed sum and repaying it over a set period with regular, equal payments. If reported to credit bureaus, consistent on-time payments on such an account can demonstrate reliable repayment behavior, contributing to the development of a credit file.

Key Elements of a Developing Credit Score

Once a credit file is established and an initial score is generated, its development is influenced by several factors. These factors are weighted differently by common scoring models like FICO and VantageScore.

Payment History

Payment history holds the most significant influence, accounting for about 35% of a FICO Score. Making all payments on time is paramount, as even a single late payment (typically 30 days or more past the due date) can negatively impact a developing score. Consistent, timely payments demonstrate reliability to lenders.

Credit Utilization

Credit utilization, representing the amount of credit used relative to the total available credit, makes up about 30% of a FICO Score. It is generally recommended to keep credit card balances well below 30% of the available credit limit. Lower utilization signals to lenders that an individual is not over-reliant on borrowed funds.

Length of Credit History

The length of credit history contributes approximately 15% to a FICO Score. This factor considers the age of the oldest account, the newest account, and the average age of all accounts. While new credit users naturally have a short history, maintaining accounts in good standing over time allows this factor to strengthen.

New Credit Activity

New credit activity, which typically accounts for about 10% of a FICO Score, refers to recently opened accounts and hard inquiries. Opening multiple new credit accounts in a short period can be viewed as risky, especially for individuals with limited credit history. Each application often results in a “hard inquiry,” which can temporarily lower a score.

Credit Mix

Credit mix, also about 10% of a FICO Score, reflects the diversity of credit accounts. This includes a blend of revolving credit (like credit cards) and installment credit (like loans with fixed payments). While beneficial to have a mix, this factor is less critical than payment history and utilization for those just starting their credit journey.