Length of credit history refers to the amount of time you’ve been using credit. In the FICO scoring model, it accounts for around 15% of your overall credit score and helps lenders understand how well you’ve managed credit over the years. The idea is that a longer credit history provides a more comprehensive view of your credit habits, which can reassure lenders that you’re a reliable borrower.
Credit history length is particularly important to lenders because it shows:
- Experience with Credit: It indicates how long you’ve been managing credit responsibly.
- Consistency: A long credit history with positive credit behaviors (such as on-time payments) demonstrates stability and suggests you’re less of a risk.
Components of Length of Credit History
Several key components contribute to the length of your credit history, each affecting your score in different ways:
- Age of Your Oldest Account
- This is the age of the very first credit account you opened. For instance, if you opened a credit card 10 years ago, that card represents the start of your credit history.
- The older your oldest account, the better, as it extends the overall length of your credit profile.
- Lenders see a long-standing account as a positive sign since it shows you have a long track record of managing credit.
- Average Age of All Accounts
- Credit scoring models also consider the average age of all your credit accounts. This is calculated by adding up the ages of each account and dividing by the total number of accounts.
- For instance, if you have one credit card that’s 10 years old and another that’s 2 years old, the average age of your accounts is 6 years.
- A high average age is beneficial, as it reflects a longer and more stable credit history. Opening new accounts reduces this average, which can temporarily lower your score.
- Age of Specific Credit Types
- The scoring model also looks at the age of different types of credit, such as revolving accounts (credit cards) and installment loans (like car loans or mortgages).
- Having a mix of long-standing accounts from various types shows lenders that you have experience managing different kinds of debt over time.
- This diversity can strengthen your score by showing that you’re capable of handling various types of credit responsibly over many years.
- Recent Activity and New Accounts
- Opening new accounts shortens the average age of your credit and can reduce your score in the short term. When you open a new account, it adds a new, “young” entry to your credit file, lowering the average age of accounts.
- Applying for multiple new credit accounts in a short period can also signal to lenders that you’re relying heavily on credit, which may make you appear riskier.
How Length of Credit History Impacts Your Credit Score
The length of credit history affects your score in several ways:
- Establishes Trust and Reliability
- A longer credit history generally shows lenders that you have a track record of handling credit well. This indicates reliability and trustworthiness in repaying debts.
- The longer your credit history (especially with positive behaviors), the more favorably it impacts your score, as it suggests you’re a low-risk borrower.
- Older Accounts are Valuable Assets
- Older accounts serve as anchors to your credit history, providing evidence that you’ve managed credit responsibly over a long period.
- Even if you’ve opened newer accounts, the presence of long-standing accounts can help mitigate the effect of new entries.
- Reduces Impact of Short-Term Changes
- People with long credit histories may experience smaller score fluctuations from minor changes, such as applying for a new credit card. This is because their older accounts continue to add positive weight to their average age, making the score more stable.
- For someone with a short credit history, a single new account can drastically reduce their average age, leading to a more noticeable drop in score.
- Helps Offset Other Credit Factors
- A long credit history can sometimes offset other factors, like a high credit utilization ratio, by showing that you’ve managed credit responsibly for many years.
- For example, if you’ve made a few late payments but have a very long history of overall responsible credit use, lenders might weigh that experience favorably.
How Length of Credit History Impacts Different Credit Profiles
The length of credit history can affect individuals in different ways, depending on their overall credit profiles:
- For New Credit Users:
- New credit users start with a short credit history, which makes them appear riskier to lenders. Their scores can be volatile, especially if they open several accounts in a short period or miss payments early on.
- Building a long credit history is crucial for new users to establish themselves as trustworthy borrowers over time. Even small, consistent actions, like paying a single credit card bill on time, help build positive history.
- For Established Credit Users:
- Those with a long-established credit history typically have a stable score and can weather small score fluctuations without much impact.
- If they open new accounts, their score may dip slightly due to a lower average age, but their long-standing accounts help cushion the impact, leading to a quicker score recovery.
Strategies to Build and Maintain a Long Credit History
Maintaining a long credit history requires consistency, patience, and strategic account management. Here are some tips:
- Start Building Credit Early
- The sooner you open a credit account, the sooner you begin building a credit history. Even a small, manageable credit line can be a valuable first step.
- Some people start with secured credit cards or authorized user accounts, which allow them to establish a positive payment record.
- Keep Older Accounts Open
- Even if you no longer use an account, it’s usually beneficial to keep it open as long as it has a good payment history and no annual fee.
- Closing an old account removes it from your active credit file, which may lower the average age of your accounts.
- Limit New Credit Applications
- Applying for new credit frequently can reduce the average age of your accounts, which may negatively impact your score.
- Limit new applications to only what’s necessary. If you’re shopping for a mortgage or loan, keep all applications within a short time frame so they’re counted as a single inquiry.
- Use Your Credit Accounts Responsibly Over Time
- Consistently using credit over time and paying off balances can positively affect your length of credit history. It shows lenders that you’re actively managing and maintaining your accounts.
- Use Authorized User Accounts (If Appropriate)
- Becoming an authorized user on a family member’s or spouse’s credit card account can help add to your credit history, particularly if the account has been open for a long time with a strong payment history.
- Note that this strategy only works if the account holder manages the account well. Negative activity on the account can hurt your score.
- Be Cautious About Closing Accounts
- Closing an account can reduce the average age of your accounts over time and affect your credit utilization, so think carefully before doing so.
- If you must close an account, try to keep your oldest accounts open if possible, as they contribute positively to your history length.
Why Lenders Care About Length of Credit History
For lenders, the length of credit history provides insight into:
- Long-Term Financial Behavior: A person with a long, positive credit history is generally seen as less risky because they’ve shown a track record of responsible financial behavior.
- Reliability Over Time: If you’ve managed credit responsibly over many years, lenders can trust that you’re less likely to default on a loan.
- Consistency: A long credit history helps lenders see how well you’ve maintained credit even through life changes or financial challenges. Consistency is a valuable indicator of creditworthiness.
Summary
The length of credit history plays a vital role in determining your credit score, especially as it contributes to the stability and consistency lenders look for in a borrower. Building and maintaining a long credit history can be challenging, but following best practices—like keeping older accounts open, using credit responsibly over time, and limiting new credit applications—can help you maintain a strong credit profile.
Overall, the longer your credit history, the more trustworthy and reliable you appear to lenders, potentially leading to better loan terms, lower interest rates, and more financial opportunities.