What Does Everyone’s Credit Score Start At?
Uncover how credit scores are established, what truly influences your first score, and why there's no universal starting number.
A credit score is a numerical representation of an individual’s creditworthiness. This three-digit number plays a role in various financial aspects, from securing a loan or mortgage to influencing insurance premiums and housing applications. It provides a quick, standardized way for financial institutions to evaluate how reliably a person manages their financial obligations. There is no universal starting credit score.
The Concept of a Starting Score
Individuals begin with “no credit history” or a “thin file,” meaning insufficient reported financial activity for credit bureaus to generate a score. A thin file indicates a limited credit history, with few open accounts or a short duration of credit use. Without enough data, lenders find it challenging to assess credit risk, which can lead to difficulties in obtaining credit approvals or less favorable terms.
A credit score only comes into existence once sufficient credit data is reported to the major credit bureaus: Experian, TransUnion, and Equifax. For a FICO score, widely used, at least one credit account must be open and reporting for a minimum of six months. VantageScore, another common scoring model, can generate a score with as little as one month of credit history. An initial score depends on an individual’s engagement with credit products and consistent reporting.
Steps to Establish a Credit Score
To build a credit profile and generate a first score, consider applying for a secured credit card. With a secured card, a cash deposit acts as collateral and usually matches the credit limit. This deposit protects the lender, making these cards accessible for those with limited or no credit history. Responsible use, including on-time payments and low balances, is reported to credit bureaus, establishing a positive payment history.
Becoming an authorized user on another person’s established credit card is another effective strategy. An authorized user can use the primary cardholder’s account, and the account’s payment history is reported to the authorized user’s credit report. This provides a quick way to benefit from someone else’s responsible credit management, boosting the authorized user’s credit score. However, the authorized user is not legally responsible for the debt, and the primary cardholder’s negative actions, such as missed payments, can also affect the authorized user’s credit.
Credit-builder loans offer another structured approach to establishing credit. Unlike traditional loans where funds are received upfront, with a credit-builder loan, the loan amount is held by the lender in a locked account, such as a savings account or Certificate of Deposit (CD). The borrower makes regular, fixed payments over a set term. These on-time payments are reported to the credit bureaus, and once the loan is fully repaid, the borrower receives access to the initial loan amount. This process demonstrates a consistent payment history without the immediate risk of borrowing a large sum.
Reporting rent and utility payments can contribute to building a credit history, although not all landlords or utility companies report this information directly to credit bureaus. Services can facilitate reporting these payments, providing an additional avenue to document payment reliability. Consistently making these payments and ensuring they are reported adds positive data to credit files.
Elements That Shape Your Initial Score
Once a credit history is established, various elements contribute to a credit score. Payment history holds the most significant weight in both FICO and VantageScore models, accounting for 35% of a FICO Score and 41% of a VantageScore. Consistently making all payments on time is important, as even a single payment reported 30 days late can negatively impact scores. A strong record of on-time payments demonstrates reliability to lenders.
Credit utilization, the amount of credit used compared to total available credit, is another influential factor. It accounts for 30% of a FICO Score and 20% of a VantageScore. Maintaining low balances and keeping the utilization ratio below 30% is recommended for a positive impact on scores, with lower percentages leading to better scores.
The length of credit history also plays a role, making up 15% of a FICO Score and 20% of a VantageScore. This factor considers the age of the oldest account, the newest account, and the average age of all accounts. A longer history of responsibly managing credit indicates lower risk to lenders.
The types of credit used, or credit mix, contribute 10% to a FICO Score and are influential for VantageScore. Having a variety of credit accounts, such as revolving credit (like credit cards) and installment loans (like auto loans or mortgages), shows an ability to manage different forms of debt responsibly. However, it is not necessary to have every type of credit, and opening new accounts solely for this purpose is not advised.
New credit, representing recent credit applications and newly opened accounts, accounts for 10% of a FICO Score and 5% of a VantageScore. Opening multiple new accounts in a short period can temporarily lower a score, as it may signal increased risk. While FICO and VantageScore are the two primary scoring models and use similar factors, they may assign different weightings, leading to variations in the final score.