Credit Scores Start to Take Shape During Childhood

New research suggests that adult credit access is shaped by childhood experiences—especially neighborhood environment and surrounding social influences.

The study from Opportunity Insights found that credit scores tend to solidify by the time a person is in their mid-twenties, with credit behavior deeply linked to formative years and early life circumstances.

The area where a child grows up has a significant impact on their future credit score. Children who live in communities where people tend to repay loans are more likely to do the same as adults. For example, each additional year spent in Bergen County, New Jersey—a high-repayment area—increases a child’s likelihood of repaying loans by 0.4 percentage points compared to time spent in Baltimore—a low-repayment area.

Family background, particularly parents’ credit score, is another key predictor of future credit outcomes. Moving from the bottom to the top of the parental credit score distribution reduces the likelihood that someone will fall 90 days behind on a loan repayment in early adulthood by 50 percentage points.

This effect holds regardless of the individual’s own income or financial situation.

Regulatory Concerns

Industry experts caution that the law prohibits credit scoring from considering certain socioeconomic factors.

“The risk assessment must be blind to some factors that often fall into alternative credit scoring,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “Top credit scoring companies refrain from including certain items that are protected by law. When alternative scoring addresses items such as college major and internet activity, scoring can be influenced by items that touch on social or economic factors with underlying datapoints that breach existing rules.

“When you start decomposing ZIP codes, for example, and compare 10708 to 10033, a whole set of sociological issues come into play,” he said. “These are not appropriate for the clinical requirement of credit scoring, which is to assess credit risk.”

Opportunities for Learning

The Opportunity Insights study suggests addressing these credit gaps by investing in communities well before children are old enough to enter the credit system. It recommends teaching responsible borrowing and repayment behaviors early in life.

“This research highlights the structural problems faced by borrowers and underscores the need for further investment into early financial literacy and education,” said Ben Danner, Senior Analyst, Credit and Commercial at Javelin. “Every high school should have a course on household budgeting and financial planning, including how credit scores work.”