What Is the Beginning Credit Score to Expect?
Demystify your first credit score. Learn how scores are built, what influences them, and what to expect as you start your credit journey.
A credit score is a numerical representation of an individual’s creditworthiness, typically a three-digit number. It is not a pre-existing attribute, but rather something that develops over time through credit activity. Individuals do not begin with a “zero” credit score; instead, a score is generated once a credit file is established and sufficient financial information is reported to credit bureaus. This score influences access to various financial products and their associated terms.
Establishing Your First Credit Score
Building an initial credit score involves specific actions that lead to the creation of a credit file with the major credit bureaus.
One common method is opening a secured credit card, which requires a cash deposit that typically serves as the credit limit. This deposit acts as collateral, reducing risk for the issuer and making these cards more accessible for those with no credit history. The card’s payment activity is then reported to credit bureaus, allowing individuals to demonstrate responsible credit management.
Another pathway involves becoming an authorized user on an existing credit card account belonging to a trusted individual. This can allow the new user to benefit from the primary cardholder’s established payment history. However, the primary cardholder’s responsible usage directly impacts the authorized user’s developing credit.
Credit-builder loans offer another structured approach, where the loan amount is often held in a savings account or certificate of deposit (CD) by the lender. The borrower makes regular payments over a set period, and these on-time payments are reported to credit bureaus. Once the loan is fully repaid, the borrower receives the original loan amount, having simultaneously built a positive payment history.
Small personal loans or student loans can also contribute to establishing a credit history. When payments are made consistently and on time, these types of installment loans are reported to credit bureaus, demonstrating a borrower’s ability to manage debt. For any of these methods to be effective in building credit, it is essential that the account activity is consistently reported to the primary consumer reporting agencies: Equifax, Experian, and TransUnion.
Factors Influencing Your Initial Score
Once a credit file is established, several key factors determine the numerical value of a credit score.
Payment history holds the most significant weight, typically accounting for about 35% to 40% of a FICO or VantageScore. Consistently making payments on time is important, as even a single late payment can negatively impact a score.
The amount of debt owed, often expressed as credit utilization, is another major factor, usually making up around 30% of a score. This refers to the percentage of available credit being used; maintaining a low utilization rate, ideally below 30%, is generally beneficial for a higher score.
The length of credit history, which includes the age of the oldest account and the average age of all accounts, contributes approximately 15% to a credit score. A longer history of responsible credit use tends to positively influence a score, as it provides more data for lenders to assess.
The types of credit used, or credit mix, account for about 10% of a score. This involves demonstrating the ability to manage different kinds of credit, such as revolving accounts (like credit cards) and installment loans (like student or auto loans). However, it is not necessary to have every type of credit, and focusing on responsible management of existing accounts is more important than acquiring new ones solely for mix.
Finally, new credit, including recent applications and newly opened accounts, makes up the remaining 10% of a score. Applying for new credit results in a “hard inquiry” on a credit report, which can temporarily lower a score.
Understanding and Monitoring Your Beginning Credit Score
Once credit activity begins to be reported, a credit score will be generated, typically falling into the “fair” range for new credit users. While score ranges can vary slightly between models like FICO and VantageScore, a fair score generally falls within the 580 to 669 range.
To access your credit information, federal law grants consumers the right to a free credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once every 12 months via AnnualCreditReport.com. Many credit card companies and financial institutions also provide free access to credit scores as part of their customer services. It is important to understand that a credit score is a single numerical value derived from the information in a credit report, while a credit report is a detailed record of an individual’s credit history, including accounts, balances, and payment history.
Regularly monitoring your credit score and report is a prudent financial practice. This vigilance allows for early detection of potential errors, inaccuracies, or even fraudulent activity, such as unauthorized accounts opened in your name. Promptly addressing any discrepancies by disputing them with the credit bureaus can help maintain the accuracy of your credit file.