A good credit score is essential to reaching financial goals, ranging from securing an mortgage to being approved for personal loans. Understanding the way that the length of your credit history affects your credit score will assist you in managing your credit better.
In this piece, we’ll look at the idea of credit history how it is calculated, the impact it has on your credit score and methods to improve it.
What is the length of credit history?
The length of your credit history is the length of time you’ve held active credit accounts. This information is gathered by credit bureaus, and then reflected on your credit report.
The longer you’ve had your credit history is, the more details lenders will have to evaluate your creditworthiness which could lead to higher credit scores and better terms for loans.
How is the length of credit history calculated?
To determine the time span of credit history, credit agencies take into account various factors:
- Age of the oldest account: The length of time since your first credit card was first opened.
- Age of your newest account: The length of time since your new credit card was created.
- Age of the average account: The combined ages of all your credit cards divided by the number of accounts.
When you take into account these aspects credit bureaus can establish how long you’ve managed credit accounts and help them evaluate your creditworthiness.
How does the length of credit history impact credit score?
The length of your credit history affects your score on credit in a variety of ways. Both FICO and VantageScore credit scoring models take into consideration the age of your credit account as a major factor in the calculation of your score.
A longer history of credit usually results in a higher credit score, as it shows that you are experienced in managing credit and paying on time. Also, a long-running credit history that includes different types of credit such as mortgages, credit cards and auto loans — proves that you are able to handle various kinds of credit with care.
What is a good length of credit history?
There isn’t a specific “good” length of credit history as the optimal length is dependent on your individual situations and goals. The longer your credit history is, the better since it gives lenders more details about your credit-management habits. However even those with shorter credit history can earn excellent scores on their credit by maintaining a solid payment history, a low utilization rates, and having a varied credit profile.
How long of a credit history do you require?
The minimum amount of credit history required to get the credit score in general differs based on the scoring system. For instance, FICO requires a minimum of six months of credit history, whereas VantageScore requires just one month. However, it’s crucial to realize that a longer credit history is usually better when pursuing large financial goals, like getting auto or mortgage loans.
What happens if you close a credit account?
Closing a credit line can have both short-term as well as long-term consequences to your credit record. In the short-term closing a credit account can reduce your credit limit. This could increase your credit utilization ratio, and negatively affect the credit score.
In the long run, closed accounts will eventually disappear from your credit score, possibly shortening the duration of your credit history as well as impacting the credit score.
Does closing a credit card harm credit score?
Closing an account with a credit card could affect your credit score, decreasing your credit line and raising your ratio of credit utilization. To limit the negative impact of closing the credit card, you should consider paying off balances on other cards, or seeking an increase in credit limit on your remaining credit cards. You can also keep the credit card open and use it for smaller purchases to keep your account in good standing.
How to Improve The Length of Credit History
There are a variety of ways to help to build and maintain a credit history:
- Keep your accounts open and in active use： Do not close accounts that are not used or old since it could decrease your credit score. Maintain your credit score by making small, frequent purchases and settling them each month in full.
- Becoming an authorized user： If you have a family member or a close friend with a good credit history, ask them if they’d like to allow you to be an authorized user on one of their credit card accounts. This will aid in establishing or strengthening your credit score, as the account holder’s credit-worthy behavior will be reported on your credit reports.
- Diversify your credit types： Try to have a mix of various kinds of credit accounts, like auto loans, credit cards and mortgages. This not only shows the ability of managing different kinds of credit but also extends the duration of your credit history.
- Think about a credit builder loan： A credit builder loan is a kind of installment loan that is designed to help people build credit. These loans are usually provided by financial institutions such as community banks and credit unions. If you make timely payments to the credit builder loan, you will be able to establish an outstanding record of your payments and improve credit score over time.
- Secured credit cards You can apply to get an secured credit card which requires a security investment that acts as your credit limit. By using your secured card responsibly and paying your bills punctually, you can establish or improve your credit score over time. If you show consistent positive credit behaviors, you could be eligible to upgrade to a non-secure credit card and get your deposit returned.
- Check your credit report Get your free credit report from all of the credit bureaus every year to ensure that your credit report is current and accurate. If you find any discrepancies or mistakes make sure you dispute them immediately.
What other factors can affect the credit score ?
Beyond the length of your credit history, a variety of other factors affect your FICO score:
- Pay history： Your record of punctual payments is the most important factor that affects the score of your FICO. Being consistent in paying your bills in time shows responsible credit management and can increase your credit score.
- Credit utilization： Keeping an acceptable credit utilization ratio (the percent of your credit available that you’re making use of) is vital for maintaining high credit scores. Try to keep it under 30 percent to prevent negatively impacting your score.
- Credit types that are in use： A diverse credit mix, that includes different types of credit, can positively impact your credit score, demonstrating your capacity to manage multiple kinds of credit in a responsible manner.
- Credit inquiries that are new： Affiliating for multiple new credit accounts within an unintentional time frame could negatively impact your credit score since it can suggest a higher level of danger to lenders. Limit the amount of inquiries that are hard to ensure a solid FICO score.
- Collections and public records： The effects of bankruptcy, judgments and collections accounts can seriously harm your credit score. It is essential to address and deal with all negative public records and collections to improve your credit score.
Bottom Line
Understanding how the length of your credit history impacts your score on credit is vital to managing your credit efficiently. By ensuring a strong payment history, a low debt-to credit ratio, a diverse types of credit and a lengthy credit record, you are able to improve your credit scores and get better loan conditions. Making sure you are in control of your credit score is an essential step to financial success.
