What Do People’s Credit Scores Start At?
Demystify credit score origins. Learn how scores are generated and gain practical advice to establish your first credit history.
A credit score is a numerical representation of creditworthiness, used by lenders for financial applications. It does not begin at a specific number like 0 or 300. Instead, a credit score is generated only after an individual engages with credit and establishes sufficient financial activity. It reflects how responsibly one manages borrowed money.
How a Credit Score is Generated
Credit scores are calculated by models like FICO and VantageScore, using credit reporting agency information. The three major credit bureaus in the United States are Equifax, Experian, and TransUnion. These bureaus collect financial data about consumers. Lenders, credit card companies, and other financial institutions report account information to them, typically monthly.
The information collected by credit bureaus includes personal details (name, address, Social Security number) and account-specific data. This account information covers credit account types, opening dates, credit limits or loan amounts, current balances, and payment history. A credit score is generated once enough data is reported for scoring models to analyze. An individual with no credit activity does not have a “starting” score, but no score until a financial history accumulates.
Credit scoring models process this collected data to produce a three-digit number that summarizes credit risk. While the exact algorithms are proprietary, these models assess various aspects of an individual’s credit report to determine the score. The resulting score helps lenders gauge the likelihood of an applicant repaying new debt.
Factors Influencing Your Initial Score
Once a credit score is generated, its numerical value is heavily influenced by specific aspects of early credit history. Payment history is the most important factor, typically accounting for around 35% of FICO scores. Consistently making on-time payments is fundamental, as even a single late payment can negatively impact a developing credit profile.
Credit utilization, the amount of credit used relative to total available credit, is another significant factor, often making up about 30% of a FICO score. Maintaining a low credit utilization ratio, ideally below 30% of available credit, is considered beneficial. This demonstrates responsible management of credit limits without over-relying on borrowed funds.
The length of credit history, including the age of the oldest account and the average age of all accounts, also plays a role, contributing around 15% to a FICO score. While a new credit profile will naturally have a shorter history, establishing accounts early and maintaining them over time can be advantageous. A longer history of responsible credit management signals stability to lenders.
The mix of credit types, such as revolving accounts like credit cards and installment loans like student or auto loans, can influence about 10% of a FICO score. Demonstrating the ability to manage different kinds of credit responsibly can be favorable. New credit applications also have an impact, typically accounting for 10% of a FICO score. Each application can result in a hard inquiry on the credit report, which may cause a temporary slight dip in the score, particularly if multiple applications are made within a short period.
Establishing Your First Credit History
For individuals without an existing credit history, several strategies can help generate a first credit score and build a positive financial profile. A common starting point is a secured credit card, which requires a cash deposit, often serving as the credit limit. This deposit acts as collateral, reducing issuer risk and making them more accessible to those with no credit. Using the card for small, regular purchases and paying the balance in full and on time each month demonstrates responsible credit behavior.
Becoming an authorized user on another person’s credit card account can establish initial credit. Authorized users may benefit from the primary cardholder’s positive payment history and credit limit, as this activity can appear on their credit report. However, the primary account holder must maintain responsible habits, as their late payments or high balances can negatively affect the authorized user’s developing credit.
Credit-builder loans offer another structured approach to building credit. Funds from this type of loan are typically held by the lender in a locked account (e.g., a certificate of deposit) while the borrower makes regular payments over a set term. Once repaid, the borrower receives the money, and on-time payments are reported to credit bureaus, establishing a positive payment history.
Student loans, particularly federal ones, generally do not require a credit history for approval and contribute to a credit profile once repayment begins. Consistent, on-time payments on student loans positively impact payment history and add to credit type diversity, favorable for a credit score. Some services allow for the reporting of rent and utility payments to credit bureaus. While not all landlords or utility companies report directly, third-party services can facilitate including these on-time payments in a credit report, providing another credit-building avenue.