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Building good credit scores doesn’t happen overnight
Establishing a pattern of responsible borrowing habits takes time and a lot of patience.
All that patience can pay off though, because the age of your credit history, or how long you’ve been using credit, generally accounts for 15 percent of your total credit scores.
Let’s explore why age of credit is important and how long it will take 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 FICO® and VantageScore® — 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.
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.
But the age of your credit history is just one piece of the puzzle. Other factors that influence your credit score include …
- Payment history
- How much current unpaid debt you have
- Your credit utilization ratio
- Your mix of credit accounts
- How much new credit you’ve applied for
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 maxed-out credit cards, 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.
How long will it take for the age of credit history to affect 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.
However, there’s no set amount of time required to achieve a certain credit score. Because everyone’s financial situation is unique, the length of time it takes for credit scores to increase varies from person to person.
Because age of credit history influences your credit scores, it’s worth considering before closing old accounts or opening new ones. That said, it’s not 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 reducing debt.
Continue to do that consistently through the years and eventually you will have built a rich credit history of responsible spending and repayment.