What Credit Score Do You Start With at 18?
Understand how credit scores begin at 18 and learn essential strategies to build a solid financial foundation for your future.
A credit score is a three-digit number, typically ranging from 300 to 850, that represents an individual’s creditworthiness, indicating the likelihood of repaying borrowed money on time. Lenders, landlords, and some insurance companies use credit scores for loan approvals, interest rates, housing applications, and insurance premiums. A higher score generally signifies lower risk to lenders, potentially leading to more favorable terms and access to a wider range of financial products.
Starting Point of Credit Scores
Most individuals, including those turning 18, typically start with no established credit score. This is often called a “thin file” because there isn’t enough credit history for the major credit bureaus—Equifax, Experian, and TransUnion—to generate a score. A credit score is derived from information in a credit report, so without activity reported, no score can be calculated.
An exception can occur if an individual is added as an authorized user on another person’s credit card account. The account’s payment history and credit limit may appear on the authorized user’s credit report, potentially providing an inherited credit history. The impact depends on whether the card issuer reports authorized user activity and the primary account holder’s responsible use.
Establishing Your First Credit History
To build a credit history from scratch, several options exist. One common method is applying for a secured credit card. This card requires a refundable cash deposit, which typically serves as the credit limit, minimizing risk for the issuer. Responsible use, including making on-time payments, is reported to credit bureaus and helps establish a positive payment history.
Becoming an authorized user on a trusted family member’s credit card can also establish a credit file. If the primary cardholder maintains a good payment record and low credit utilization, this positive activity can reflect on the authorized user’s report. The authorized user is not legally responsible for the debt, and the primary cardholder’s actions directly impact the authorized user’s credit.
A credit-builder loan is another option. With this loan, funds are held by the lender while the borrower makes regular payments. Upon full repayment, the borrower receives the original loan amount, and consistent, on-time payments are reported to credit bureaus. Student loans also contribute to building a credit history, as they are a form of installment credit with reported on-time payments.
Key Factors That Shape Your Score
Once a credit history is established, credit scoring models like FICO and VantageScore analyze various factors. Payment history is the most influential factor, accounting for about 35% of a FICO Score and up to 40% for some VantageScore models. This assesses whether bills are paid on time and includes details on late payments, bankruptcies, or accounts in collections.
Amounts owed, also known as credit utilization, is another significant factor, generally comprising 30% of a FICO Score. This measures the amount of credit used relative to total available credit, with lower utilization, ideally below 30%, indicating responsible management. The length of credit history, considering the age of accounts and the average age of all accounts, contributes approximately 15% to a FICO Score. A longer history of responsible credit use is viewed favorably.
New credit, including recent applications and newly opened accounts, makes up about 10% of a FICO Score. Numerous new credit inquiries in a short period can suggest higher risk and may temporarily lower a score. Credit mix, representing the diversity of credit accounts (e.g., revolving credit and installment loans), accounts for roughly 10% of a FICO Score. Demonstrating the ability to manage different types of credit responsibly can positively influence a score.
Practical Steps for Building Good Credit
Building a strong credit score involves consistent and responsible financial behaviors. Making all payments on time is paramount, as payment history carries the most weight in credit scoring models. Setting up automatic payments or reminders can help ensure bills are never missed. Keeping credit utilization low is also crucial, ideally maintaining balances below 30% of available credit limits. This demonstrates that an individual is not overly reliant on borrowed funds.
Avoid opening too many new credit accounts simultaneously, as each application typically results in a “hard inquiry” on the credit report, which can slightly lower the score for a short period. Closing older accounts can shorten the length of credit history and potentially impact the score, especially if they are long-standing accounts with good payment records. Keeping older, well-managed accounts open is often beneficial.
Regularly monitor credit reports from the three major bureaus—Equifax, Experian, and TransUnion. Federal law allows access to a free credit report from each bureau annually. Reviewing these reports for accuracy can help identify and dispute any errors or fraudulent activity that could negatively affect a credit score. Consistency in these financial habits is key to building and sustaining a robust credit profile over time.