How does age of credit history affect credit scores?

Young woman smiles as she checks her wristwatch in her home office, wondering how the age of her credit history impacts her credit scores,Image: Young woman smiles as she checks her wristwatch in her home office, wondering how the age of her credit history impacts her credit scores,

In a Nutshell

Because everyone’s financial situation is unique, the amount of time it takes to establish good credit varies from person to person. While age of credit history does affect your credit scores, there are several other factors in the equation for better credit scores.
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Building good credit scores doesn’t happen overnight. But with a little time and patience, you can increase your credit age, which can have a positive effect on your scores.

The age of your credit history, or how long you’ve been using credit, generally accounts for 15% of your total credit scores. That means that, with time, your average credit score could go up because of a longer account history. And higher scores potentially translate into getting lower interest rates on credit, as lenders see a lengthier pattern of good credit history.

Let’s explore why age of credit is important, the factors that make up your credit scores and how much “age” it takes to make an impact on your credit scores.

What is age of credit history?

Age of credit history refers to the length of time you’ve been using credit. In general, credit-scoring models — such as the FICO® and VantageScore® credit scores — look at the age of your oldest and newest accounts and the average age of all your accounts to determine the impact that age of credit history will have on your credit scores.


Will opening or closing an account lower my credit scores?

Opening or closing an account may reduce your credit scores in the short term because it decreases the average age of your accounts. Consider each application for new credit carefully and think twice before closing an account in good standing. Closing old credit accounts with positive credit histories may have a negative effect on your scores, especially if you close multiple accounts at one time, according to VantageScore®. Instead of closing your older accounts, consider keeping them active by charging small recurring purchases to them — such as your monthly Netflix or Spotify bill. Just make sure you don’t forget to pay off these charges in full by each payment due date.

Why is age of credit history important?

When making lending decisions, lenders review your credit history to determine how likely you are to repay your loan on time. A longer history shows you have more experience using credit, while a short credit history shows you have less experience.

In theory, the longer your credit history, the more accurate lenders can be in determining the level of risk they take on when lending to you.

What are the factors that make up my credit scores besides age of credit history?

Your account age, or length of credit history, is just one piece of the puzzle when it comes to the factors that make up your credit scores. Here are some other things that influence your credit scores.

Your payment history and credit utilization ratio have a greater impact on your scores than the age of your credit accounts. So, unfortunately, if your credit reports show that you’ve missed payments and have a high utilization ratio on a credit card, a long credit history may not be enough to make up for the less-than-ideal information on the reports.

On the other hand, if you have a long history of on-time payments and a low credit utilization ratio, it shows you know how to responsibly manage credit and are a good risk to lenders — meaning you could be more likely to be approved for credit cards and loans.

No matter the scoring model, there are some keys to having higher credit scores. The charts below show what factors make up two popular credit-scoring models, the FICO® Score 8 credit score and VantageScore 3.0 credit score — though keep in mind that scoring models are complex and many different variables affect the calculation of your credit scores.

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ccupdateutilization-vantage-3Image: ccupdateutilization-vantage-3

Payment history

Your bank or other financial institution wants you to pay back what you borrow. That’s why your payment history, which is the history of how many on-time payments you’ve made on loans or credit cards, factors heavily into your credit scores. Making late payments will cause your payment history to be less than 100%, which could potentially harm your credit scores.

Credit utilization

Credit utilization is a way of calculating how much of your total available credit you’re using. Generally, it’s best to keep your total utilization as low as you can — most experts suggest keeping it under 30%.

Account mix

Your account mix, or the types of credit accounts you have, may be a factor in determining your credit scores. Lenders generally like to see that you have a history of making on-time payments on a variety of credit accounts rather than just one type. So a mix of credit cards, plus other loans — like auto loans, student loans or mortgages — may help you build your credit scores.

New accounts and credit inquiries

Hard and soft inquiries happen when you apply for new credit accounts, or sometimes when you set up utilities or rent an apartment. Hard inquiries typically stay on your credit reports for two years. And if you have a large number of hard inquiries in a short period of time, it may lower your scores because lenders could view you as a borrower who’s seeking credit.

How long does my credit history have to be to help my credit scores?

In general, you need to have at least one account open that has been reporting to the credit bureaus for six months to have enough information to generate a credit score.

You can continue to build your credit history by paying your bills on time and establishing a mix of credit accounts that includes installment loans (like a student loan or mortgage) and revolving lines of credit like a credit card or home equity lines of credit. You could also become an authorized user on an account where someone has a long-established credit history.

Because everyone’s financial situation is unique, the length of time it takes for credit scores to increase varies from person to person.

What’s next?

Because the length of your credit history influences your credit scores, you’ll want to think carefully before closing old accounts or opening new ones. That said, the average age of accounts isn’t the most important factor in determining your scores.

Your payment history and the amount you owe to lenders account for more than half of your credit scores. If you want to establish or maintain good credit health, it’s probably best to focus on paying your bills on time and keeping a low utilization rate on your open accounts.

Continue to do that consistently through the years and eventually you will have built a strong credit history.

Hear from an expert

Q: Why is credit history so important?

A: It is important since it provides information to the lender about your financial stability. It reveals the level of risk they (lenders) will have to absorb when they deal with you.

Dr. Miren Ivankovic, Adjunct Professor of Economics, Clemson University

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.