How length of credit history affects your credit score
WATERLOO – In the formulas that determine a credit score, how long you have had credit may seem to be a somewhat minor factor. That statement certainly sounds true for the FICO score, which counts this portion as 15 percent of your overall score.
However, for VantageScore your credit history is combined with the types of credit you have and is considered “highly influential.” Additionally, while 15 percent may not seem like all that much when it comes to your FICO score, it really is—15 percent of 700 is a little more than 100 points. And if you’re shooting for an 800 score, it represents a whopping 120 points. This factor is certain to be taken into consideration the next time you apply for credit, especially if your score is thin (meaning you don’t have a lot of information on your credit reports).
So, what does it all mean? Let’s dive in and see what we can uncover.
What is length of credit history, and how does it affect your score?
This is just what it sounds like—over how long a period have you had credit? According to myFICO, there are three factors at play here.
First, it averages the age of all your accounts by looking at how long each of your credit accounts have been open, targeting especially the age of your oldest and newest accounts. Second, it examines how long each specific account has been open. Third, it looks at when the account was last used. What’s important in this last category is that accounts that were closed “in good standing” will continue to show up for 10 years and can be very helpful to your score.
Of course, those with negative marks (such as missed payments or collection items) will stay as well and can hurt your score, but not quite as long. These negative accounts will disappear from your credit report after seven years.
What is a good length of credit history?
While there is no hard and fast answer to this question, seven years seems to be a magic number when it comes to credit scoring. As previously noted, it takes seven years for negative information to fall off of your credit report.
However, you can get a great credit score in a lot less than seven years. Those new to credit can get a FICO score once an account is about six months old and its payment history has been updated at least once; it takes even less time to get a VantageScore (this can happen within a month or two of opening an account).
And remember that this is not the only factor when it comes to credit scoring; your positive actions with regard to payment history and credit utilization can make up for a “younger” credit age. Still, older accounts in good standing will always serve to help your score.
Does closing a credit card hurt your score?
As noted above, a closed credit card account in good standing will remain on your credit report for at least 10 years and will continue to help your length of credit history score during that time. But after 10 years, a closed account will disappear.
However, closing a credit card can still hurt your score. While there are good reasons for closing a credit card, when you do you lose the available credit on the closed card and your credit utilization ratio will suffer. The point here is that closing the account won’t hurt you in the credit age department (for 10 years at least), but may in the utilization department (how much of your total credit is still available).
The utilization factor is worth 30 percent of your FICO score and is “extremely influential” to your VantageScore. This is why I recommend you keep credit cards open (unless you have a compelling reason to close).
You may think that one of those compelling reasons is the interest rate you are charged for carrying a balance. My answer to that is, don’t carry a balance on a card like that! Once you pay it off, continue to use it for expenses you have already planned for (like groceries or gas). When you get the bill, pay it off immediately and you won’t have to worry about a double-digit interest rate. You shouldn’t be charged any interest if you pay the card off during the grace period.
This will keep the account current and in good standing and, more importantly, will ensure that you don’t go into debt using the card. The added bonus is the continued help to your credit age.
How to improve your length of credit history
There is a popular saying that you can’t be too young or too thin. Neither of these apply in the world of credit. Thin files with a short credit history are less attractive (score lower) than chubbier, older files!
So, how can you maximize your credit history with a minimum of waiting? You might improve it somewhat by becoming an authorized user on someone else’s older account, but you need to know that the individual credit bureaus treat authorized users differently. Be sure that the account is in good standing because TransUnion and Equifax may report negative information about an authorized user account, but Experian does not.
Other than that (and lacking a time machine), what you can do in the meantime is make sure to pay your all of your bills on time, each and every time, and watch how much of your credit you access. You might look at your credit mix (the types of accounts you have) and consider opening a different type of account to help in this category.
But be careful with this approach. Don’t apply for several accounts at once because hard inquiries will bring your score down. Try to only apply for credit when you need it and when you are fairly sure you will qualify. I promise you as long as you do these things that with time and patience, you can have one of those chubby credit scores that will afford you the things you want.