By MIKE GOLDSTEIN
Building a great credit score takes a lot of positive qualities. On top of the responsibility, prudence and maturity required to stay on top of your bills and spend within your means, developing a top credit score also takes a good deal of patience. Age of credit history is one of the fundamental factors that can influence your credit score, and it's not something you can get overnight.
While age of credit history is certainly important, there is honestly no set of amount of time required to have a good score. Each person's experience will be different. In this article, we'll explore how this factor may be calculated and how long it takes to build a healthy credit score.
What is age of credit history?
Age of credit history reflects the length of your experience with the credit system. Conceptually, this aspect of your credit score is meant to speak to how experienced you are with the responsibility that comes with credit cards, loans and other borrowing.
The way the metric is calculated specifically can differ between scoring models. Commonly, many models will judge your age of credit history by calculating the average age of your open accounts. This, notably, is what's shown on Credit Karma. Other models may simply use the age of your oldest account instead. Finally, some models could factor in closed accounts in the average age calculation for as long as they remain on your credit report.
The specifics of how a particular decision could affect your age of credit history depend on which calculation model is being used. Generally, though, it's beneficial to keep your oldest credit accounts open and active. Whether the effects of closing your oldest accounts are immediate or delayed until the account in question finally falls off your report, doing so will usually lead to your age of credit history metric dropping. For models that average age across your accounts, keep in mind that opening a new credit card or loan might drop your average age in the short term, as well.
Why does age of credit history matter?
Lenders use your credit report to get a sense of your track record of borrowing. They want to evaluate the risk that lending to you poses, and may use this information to decide whether to approve you for credit or to adjust their terms accordingly. The longer your credit history, the more they have to judge on, and the more accurate of an assessment they can make.
Age of credit history isn't the only aspect, though. If your lengthy credit history is full of missed payments and derogatory marks, the fact that you've been around for a while probably won't be enough for a great score.
So how long does it take to build a great credit score?
Unfortunately, there's no one answer here. Your credit score depends on many factors, not just age of credit history, so there's not a magic time barrier you have to cross before your score leaps up 100 points or anything like that. Still, we can learn from the data we have about how age of credit tends to relate to credit scores.
Among Credit Karma members, we've noticed a steady rise in credit scores as the average age of open accounts gets longer.* Members with an average age of open accounts between one and two years have an average credit score of 622. Bump that age up to two to five years, and the average score rises to 638. Ages between five and eight years average 661. Finally, average ages over eight years earn a credit score of 675. The trend here is pretty clear.
Put another way, Credit Karma members with scores that top 750 have an average age of open accounts of 7.5 years. While there is no magic number or threshold here, it is fairly clear that a great credit score does usually take some time.
In addition to the other factors that contribute to your credit score, age of credit history is something that's worth keeping in mind. Establishing a healthy age of credit history might even influence certain financial decisions, like whether or not to close a credit card. In the end, it's your score to maintain, so stay educated on the factors that might affect your credit health and make the decisions that are right for you.
*All data cited based on the most recently available credit reports of Credit Karma members as of October 2014.
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