Everyone is at a different stage in their credit journey. While some have had their accounts for decades, others are just getting started.
How important is the age of your credit in the grand scheme of things?
Considering the length of your credit history accounts for 15% of your score, it’s important enough that it can make a positive or negative impact.
Since this is the third most important factor used to calculate your credit score, what can you do to improve your credit age? Keep reading for a deeper understanding of how credit age works and how you can use it to boost your score.
What is the “age” of credit history?
The age of your credit is the average time your credit accounts have been open. The longer your account history, the better your credit score gets—assuming other aspects of your credit score are in good standing.
What are these other factors? Some other elements that influence your credit score are:
- Payment history 35%
- Amounts owed 30%
- New credit 10%
- Mix of credit 10% (types of credit like credit cards, loans, and car notes)
Age of credit vs length of credit history
If you look at FICO’s credit score breakdown, you won’t see “age of credit” as one of the factors. That’s because it falls under the “length of credit history” category, making it confusing for some.
What’s the difference? Length of credit history refers to how long you’ve had each individual account open, while credit age is the average of all accounts. So, think of the length of credit history as the exact amount of time an account has been open, and age as the average of them all.
How is credit age determined?
Two of the leading credit scoring models—VantageScore and FICO—calculate your credit age by adding the ages of your oldest and newest accounts (in months) and dividing them by the number of accounts you have.
For those who only have a single credit account, your length of credit history and average credit age are the same.
What happens if you have a short credit history and have only had credit under a year? To generate a credit score, at least one of your accounts must report your information to credit bureaus for a minimum of six months. When opening new credit, double-check and make sure they report your information to all three credit bureaus (Experian, Equifax, TransUnion), especially if it’s a secured card.
Why is credit age important?
Lenders look at various factors before deciding to approve credit. One factor is credit age because it shows them that you can successfully manage an account over time. This then gives them an indication of how likely you are to repay what you owe.
For example, if you’ve had a credit card for 5 years and never missed a payment, lenders may feel more confident that you’ll repay any debt you owe. However, if you’ve only had a credit card for a year and never missed a payment, it can be harder to forecast whether you’ll keep up with future repayments.
This can also create the issue where you have “too few accounts paid as agreed” showing on your credit report. This doesn’t mean you’ve missed payments or paid late; it’s likely because you don’t have enough credit accounts open. If you haven’t had your accounts open for a long period, that could be the reason for this message too.
Building credit age is a long game, so don’t panic if you’re just getting started. Focus on ensuring your accounts are paid on time, diversifying your credit types, and credit utilization (don’t use over 30% of your available credit).
Also, avoid closing existing accounts, as it can lower your overall credit age.
The benefits of long credit history
A long credit age or history can yield long-term rewards for you. What are some benefits?
- Better interest rates: At times people assume someone with a bad credit score can’t take out credit, but that isn’t the case. Sometimes, they get approved for credit but end up stuck with high-interest rates. When you have longer credit age and good repayment history, you’re likely to get some of the best interest rates.
- Boosted credit score: Accounts that have long credit age are attractive to lenders. One reward is a boosted credit score, as you’ve demonstrated your ability to maintain accounts over a long period without missing payments or defaulting.
- Access to better deals: When you prove you’re a trustworthy borrower, you can get access to better deals on credit cards, insurance, and housing. For instance, some credit cards with generous cashback rewards are only available to people with long histories and high scores. Likewise, you could end up paying less on car insurance or get easily approved for a new rental apartment.
How to improve credit history
Be careful with opening new credit accounts, as it can drag the average age of your accounts down. It can also lead to a temporary dip in your score because it’s a hard inquiry. This isn’t to say you shouldn’t get new credit but consider the implications before doing so.
Likewise, avoid closing accounts if you don’t need to, as that also brings the average age of your accounts down. It’s better to keep the account open and active instead.
Another idea to try is becoming an authorized user on an “old” account. This may especially be useful if you’re relatively young and haven’t been eligible for credit long enough to have a long history. For example, if your mom has had a credit account for 20 years with good credit history, you could ask her to add you as an authorized user. This is helpful if you’re new to credit and need somewhere to start while you build your own credit history.
Aside from the mentioned, an overlooked tip to try is to check your credit report to ensure there are no mistakes. You can get a free copy from any of the three major credit bureaus. Be sure your name, Social Security number, other personal information, and credit history are all accurate.
To improve credit history, the best credit advice is to wait it out and keep all your accounts in good standing. Also, remember credit age isn’t the most important aspect of a credit score—there are bigger factors to focus on. Making payments on time for all the accounts you have is the best thing you can do for your score.