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.

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.

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.

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

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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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.

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

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. 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. But 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.

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.