Understanding Length of Credit History

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Credit score report with calculator, glasses and pencil on table.

How old is your credit history? The credit bureaus would like to know.  The credit you have obtained and the average of all of the credit ages make up this important factor in your credit score.  Although it’s not as high as payment history, the length of credit comprises of 15% of your entire score.  It’s still an important factor in determining your credit.

What is the Length of Credit History?

The length of credit history is an average age of all of your credit.  For every instance of when credit is opened, the credit agencies determine the age of the credit by assessing the open date.  For example, if you opened up a credit card five years ago, the age of the credit would be 5 years.   Suppose you have 10 different credit cards with various ages.  The calculation for the Length of Credit History will average out all of the credits and determine the average length.

Believe it or not, this even includes any closed or inactive accounts in your credit history.   The credit age may also include closed accounts in the calculation.

Good Credit History Length

The older your credit history, the better your length of credit.  Pretty simple, right?  This number tells the credit agencies that the longer your credit history, the more responsible you are likely to be.  This may not be the case for someone building new credit, though.  So you may want to plan to keep certain credit cards for the long run.

If you’re new to credit, it will usually take 6 months to show that you have credit.  Don’t be too concerned because the credit game is a long term process.  There are some options to get started and building credit (see below).

Length of Credit History Strategies

Closing Accounts

Most people believe that closing your account could be a good method of increasing your credit score. This isn’t always true.  In fact, closing your account doesn’t only lower your overall credit card utilization but it also terminates the credit history for your account.  Ultimately, what this does is that it shortens the length.  Even if you don’t have plans to continue with the credit, it might make sense to keep the credit open. 

To keep the credit open, simply charge small amounts every quarter or half year.  The charge will tell the credit card company or creditor that you’re still utilizing the credit line.  Having no activity for a long time may get the creditor to automatically close your account.

Now, there are certain account that will naturally close. For example, mortgages and car loans. The creditors will automatically close the account after you complete payments.

New Accounts

Another factor in your length of credit history is new accounts.  New accounts are naturally shorter in length because you just opened the account.  If you’re opening too many accounts around the same time, your score could go down because the overall average age of your credit goes down.

For people who want to obtain credit cards for perks like free hotel stays, you might want to plan accordingly.  Chase bank, for instance, disallows new accounts if you have opened up too many credit card accounts in the past 2 years.  Experts often coin this as the 5/24 rule.   You might want to stagger your account applications as creditors know how frequent you apply for new accounts.

Having No Credit History

If you’re in this situation, no need to worry since this portion doesn’t make up a majority of the entire credit score.  Focus on the other factors of your score.  Having no credit history also means that you will likely to have a low score anyway.  The factors that determine your credit history will naturally build up over time.

However, there are some ways to start building your credit score if you have no credit history.  For instance, consider getting a secured credit card if a credit company can’t get you a non-secure card.   Secured credit cards are cards that have some collateral to back up the card.  The bank may require that you have cash set aside if you can’t pay your debt.

Another way to start your credit history is to become a co-applicant for a credit card or loan.  This will involve another person who can apply for the credit jointly with you.  The creditors will determine creditworthiness of primary applicant and will issue a card or loan based on that applicant’s credit score.  As you can see, it’ll take a lot of trust from the primary applicant to risk his or her score to get you started.   You might want to only consider close friends or family members to take this way of obtaining new credit.

Summary

The length of credit history is like fine wine.  The older the age of the bottle, the better the score.   If you’re going to open up new loans and credit cards, make sure that you plan for the long run.  The credit age is an important part of your credit score.  By checking and reviewing your credit score, you’ll find credit history that can further propel you in the quest for an excellent credit score.

More Information

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