Understanding the Length of Credit History and Its Impact on Your Credit Score
The length of credit history is a crucial factor in determining your credit score. It refers to the amount of time you’ve been using credit and how long your accounts have been open. This component of your credit score assesses not only how long you’ve had credit accounts but also the age of your oldest account, the average age of all your accounts, and how recently you used them.
1. How Length of Credit History Affects Your Credit Score
Credit scoring models, such as FICO and VantageScore, consider the length of your credit history as a significant factor. Here’s how it typically impacts your score:
- Age of Your Oldest Account: The older your oldest credit account, the better it is for your score. A longer credit history demonstrates that you’ve had experience managing credit over time.
- Average Age of All Accounts: Lenders prefer to see an established credit history, which includes an average account age that’s relatively high. The longer your average account age, the more positively it can influence your score.
- Recency of Credit Use: How recently you’ve used credit can also affect your score. Regularly using and paying off your credit accounts helps show that you’re actively managing your credit.
2. Why Length of Credit History Matters
Lenders and creditors look at the length of your credit history to gauge your experience with managing credit. A longer history provides more data points, allowing lenders to make a more informed decision about your creditworthiness. A shorter credit history, on the other hand, may indicate that you haven’t had enough time to establish a reliable track record.
Having a long credit history can be particularly beneficial if it’s coupled with a good payment history. It shows that you’ve been able to manage credit responsibly over an extended period, which can make you a more attractive candidate for loans, credit cards, and other financial products.
3. How to Improve the Length of Your Credit History
Improving the length of your credit history takes time, but there are some strategies you can use to make the most of this credit score factor:
a. Keep Older Accounts Open:
One of the most effective ways to maintain or improve your credit history length is by keeping your oldest credit accounts open. Closing old accounts can lower the average age of your accounts, which may negatively impact your credit score. Even if you no longer use a particular credit card, keeping it open (especially if it has no annual fee) can benefit your score.
b. Be Cautious with New Credit Accounts:
Opening several new credit accounts in a short period can lower the average age of your accounts, which can hurt your score. Try to space out new credit applications to avoid this.
c. Use Your Accounts Regularly:
While it’s essential to keep older accounts open, it’s also beneficial to use them occasionally. Inactive accounts may be closed by the lender, which can reduce the length of your credit history. Even small, infrequent purchases can help keep an account active.
d. Become an Authorized User:
If you’re just starting out or have a short credit history, becoming an authorized user on someone else’s long-established account can help. As an authorized user, the account’s age can be factored into your credit history, potentially boosting your score. However, ensure that the primary account holder has a good credit history, as any negative activity on the account could affect your credit.
4. Impact of Length of Credit History in Different Credit Scoring Models
While the length of credit history is an important factor in all major credit scoring models, the weight it carries can vary. In the FICO scoring model, length of credit history accounts for about 15% of your total credit score. Other factors, like payment history and credit utilization, have a more significant impact, but the length of credit history is still crucial.
In VantageScore, the impact of length of credit history is combined with other factors under “depth of credit,” which also considers the types of credit accounts you have. Regardless of the model, a longer credit history is generally better, especially when paired with responsible credit behavior.
5. Conclusion
The length of your credit history is a key component of your overall credit score, influencing how lenders view your creditworthiness. While you can’t instantly lengthen your credit history, you can take steps to ensure it grows over time by maintaining old accounts, being strategic with new credit, and using your accounts regularly. Understanding how this factor affects your credit score can help you make informed decisions that contribute to a healthier credit profile and better financial opportunities in the long run.