Who decided that credit scores should start at 300, and why? Is it just a nice arbitrary number? If scores just fall on a linear distribution from 300 to 850, wouldn’t it just be easier to start at zero and count up to 550? What is the benefit to starting at 300? That seems SO crazy to me.
It’s to make people feel better. 300 sounds way better than 0. There’s no legitimate reason otherwise. Before FICO 9, the scale was a 500 point scale from 350 to 850. You could subtract 350, and then multiply the number by two to get your percent likelihood to pay the loan back. For example, a credit score of 800 would be:
450×2/10= 90% likelihood to pay the loan back
Therefore, the 500 point scale could have been 0-500, but they chose 350-850 because they don’t want you to feel like complete shit.
Before explaining the score, it’s important to understand the scoring models. Credit Scores are the output from a scoring model (e.g. FICO Score or VantageScore). Scoring models have also been updated over time (e.g. FICO model 1.0, 2.0, …5.0). They calculate differently to produce a score, and have their own score ranges, so 300 is not the bottom of all scoring models.
The scoring models take into account several factors, like your income, types of credit you have or used in the past, how long you’ve been in the credit system, do you pay off in full or carry a balance, and your history of paying back borrowed money–with each factor being assigned a number and weighted differently depending on associated risk. Even after you open your first line of credit, it takes time to collect enough data to run it through the scoring model to produce a credit score. You can’t really have a payment history after a month, so it’s insufficient data to produce a score. You receive your first score after 6 months. By then, it can’t be zero because even having an open account, and the account having a credit type, carries a score.
Credit Scoring is a service provided to lenders to help them understand in simple terms the financial risk they accept by lending you money. A credit score of zero would indicate you have insufficient credit history. It’s not really a zero so much as it’s a lack of score, and seen as risky by the lender, not the scoring model. It’s not as risky as someone who has borrowed and defaulted, but it’s more risky than someone with a history of borrowing and paying back.