What Does Your Credit Score Start At?

A credit score offers a numerical representation of an individual’s creditworthiness. Lenders and other entities rely on these scores to assess potential risk when extending credit, influencing decisions for loans, credit cards, and even rental agreements.

Understanding Credit Scores and Their Range

A credit score is a numerical expression summarizing an individual’s credit risk, indicating the likelihood of repaying borrowed money on time. Lenders utilize these scores to evaluate a consumer’s ability to manage debt responsibly. In the U.S., the two most widely used credit scoring models are the FICO Score and VantageScore. Both FICO Scores and VantageScores typically range from 300 to 850. A higher score indicates a lower risk to lenders, suggesting a greater likelihood that debts will be repaid. While both models share this common range, they may weigh certain aspects of a credit report differently when calculating a score.

How Credit Scores Are Established

A common misconception is that a credit score begins at a specific number, such as 0 or 300. In reality, a credit score does not “start” at any fixed value. Instead, a score is generated by credit bureaus, such as Experian, Equifax, and TransUnion, once an individual’s credit report contains sufficient data. To establish a scorable credit history, an individual typically needs to have at least one credit account open and reported to one of the major credit bureaus for a certain period, often cited as six months. Until these minimum conditions are met, a person is considered “credit invisible” or without a credit history, meaning they do not yet have a generated score. The first score generated will vary, reflecting the initial financial activities reported to the bureaus.

Factors Influencing Your Initial Credit Score

Once a credit score is generated, its value is determined by several key factors within the credit report:

• Payment history: Consistently making payments on time demonstrates reliability to lenders. Late payments can negatively impact a score, even early in a credit journey.
• Credit utilization: This is the amount of credit used relative to the available credit. Maintaining low balances on credit lines, even small initial ones, is beneficial.
• Length of credit history: This considers the age of the oldest and newest accounts, along with the average age of all accounts. While a new credit history will naturally be short, responsible management over time contributes positively.
• Mix of credit types: Revolving accounts (like credit cards) and installment loans (like a car loan) can also play a role, although it has a lower impact than payment history or utilization.
• New credit applications: These result in hard inquiries, which can temporarily lower a score by a few points, especially if multiple applications are made in a short period.

Building Your Credit History from Scratch

Individuals with little or no credit history can take actionable steps to establish and improve their credit scores:

• Secured credit cards: These are a common starting point, requiring a security deposit that typically acts as the credit limit. Responsible use and timely payments on these cards are reported to credit bureaus, helping to build a positive history.
• Credit-builder loans: The loan amount is held by the lender in a savings account or certificate of deposit while the borrower makes regular payments. Once the loan is fully repaid, the funds are released to the borrower, and the consistent on-time payments are reported to the credit bureaus.
• Authorized user: Becoming an authorized user on another person’s established credit card account can also help, as the primary account holder’s positive payment history may reflect on the authorized user’s credit report. It is important to ensure the issuer reports authorized user activity to the major credit bureaus.
• Non-traditional data: Services, like Experian Boost or UltraFICO, allow individuals to include non-traditional payment data, such as utility or rent payments, to potentially impact their scores.