Your credit history length shows creditors how long you have been using credit, including personal loans. It plays a significant role in determining your credit score and creditworthiness.
Let’s review what you need to know about credit history length, how to establish a good credit record, and strategies that can help you improve your credit management.
Understanding the importance of credit history length
Creditors and lenders assess your creditworthiness when determining how risky it is to lend you money or extend credit to you. Credit history length affects your creditworthiness. Here are the main reasons why credit history length is essential.
Predicts future behavior
The longer your credit history length, the better of a predictor of future behavior it becomes. If you have always repaid your debts on time, then you are likely to repay your future debts.
Oftentimes, having a long credit history length is preferable to having a short one because it can help demonstrate how consistent your credit behavior is. This benefits you if you have a fairly solid display of good financial management over the course of your credit history.
If you have a short or non-existent credit history, creditors essentially see you as a question mark because it cannot reliably predict your future credit behavior.
Demonstrates your financial responsibility and debt management
A long credit history allows creditors to see how well you manage your finances over an extended period of time. Creditors will want to judge how deftly you manage your debt obligations. They will view you as high-risk if your credit history shows multiple instances of late payments, defaulted loans, foreclosures, bankruptcies, or other negative items. On the other hand, if you have a long history of regular, on-time payments, creditors see this as a green flag.
Affects your access to credit
Many creditors have minimum credit history length requirements. With an adequate credit history length, it will be easier for you to obtain credit.
Influences your loan applications
Your credit history length will come under scrutiny if you apply for a personal loan. Lenders are more likely to give loan funds to borrowers who have a lengthy credit history with a good track record of repaying debt and managing credit.
Better loan terms and rates
Some lenders might give you longer loan tenures or lower interest rates if you have proven you have good credit management capabilities in your lengthy credit history.
Meanwhile, if you have yet to establish lengthy records of credit usage and management, it can be challenging to be approved for personal loans with favorable terms.
More opportunities for positive credit impact
As you build your credit over time, you will see more opportunities to boost your credit score and make financial choices that have a positive impact. Many factors that influence credit scores require patience and time. If you have little to no credit history, then it is not possible to fill your credit report with responsible financial moves.
The impact of credit history length on credit scores
Both of the major credit scoring models place importance on your credit history length since it is something creditors and lenders care about for creditworthiness.
FICO credit history length
The length of your credit history accounts for around 15% of your FICO credit score. What FICO looks at in regard to your credit history length includes:
- The age of your oldest account
- The age of your newest account
- Average age of all your credit accounts
- How long particular accounts have been open
- How long it has been since an account has been actively used
If you don’t have at least one credit account that has been open for at least six months, FICO may not generate a credit score for you.
VantageScore credit history length
Your VantageScore takes into account roughly 15% to 20% of your credit history length.
Unlike FICO, the VantageScore model may be able to generate a credit score for you even if you do not have a lengthy credit history. Individuals with a credit history of at least one month may receive VantageScore credit scores.
How to establish a credit history and its effect on credit history length
Establishing a credit history can be challenging in that to get credit, many creditors require you to already have credit. This is in part because if you do not have an existing fair, good, or excellent credit score, there will be doubt surrounding your creditworthiness.
Here are some ways you can start building a credit history if you do not already have one.
Apply for a secured credit card
Secured credit cards are a valuable way for you to establish credit if you have little or no credit history. They can also help individuals who have low credit scores or are considered high-risk by creditors.
Have someone with good credit be your co-applicant
If you have a family member or a friend who has at least good credit, you can ask if they might be willing to co-apply for credit or co-sign a loan.
Minimize your account balances to prioritize long-term credit health
If you have just begun to build credit and want to establish a long and positive credit history, it can help to keep your credit accounts’ balances low.
Diversify your credit
The ideal credit mix should include several different types of credit accounts. If you are building new credit, you may want to consider obtaining a new kind of credit that you don’t already have. For example, if you already have revolving credit (e.g. credit cards or home equity lines of credit), it might be time to seek out some installment credit (e.g. mortgages or auto loans).
Before you make any official decision and open up a new credit account, review your goals and needs to see whether it is the optimal choice for you. While adding a new account to your credit mix can look good on your credit history, too many new accounts can hurt your credit score.
The role of credit utilization in credit history length
Your credit utilization ratio refers to how much of your total credit you are using at any time. Both FICO and VantageScore consider your credit utilization ratio when determining your credit scores and assessing your creditworthiness.
High credit utilization
Frequently maxing out your credit cards can reflect poorly on your credit history. It’s important to be careful and try to keep your credit utilization ratio below the 30% threshold so that it is less likely to hurt your credit history and creditworthiness.
Low credit utilization
If you show that you have responsible credit utilization by keeping your credit utilization ratio lower than 30% over time, you can improve your credit history and make a positive impact on your credit score.
Tips for maintaining a long credit history
Since a longer credit history is advantageous if it highlights your responsible financial management, here are some general tips that can help guide you toward maintaining a good credit history.
Don’t close old credit accounts
Many people close their old and unused credit accounts to clear up space in their credit history and decrease the number of accounts they need to monitor or worry about. However, if you want to establish a long, positive credit history, you might want to avoid closing old credit accounts even if they are unused.
Use credit responsibly
Whether you’re borrowing funds from a lender or using credit cards, it’s essential to make regular, on-time payments according to your repayment schedule. Carrying high credit card balances or making late loan payments can become derogatory marks on your credit history.
How to improve credit history length after a period of inactivity
If you have stopped using your credit for a while, your credit records may fall into a state of inactivity. Don’t worry–once you start using credit again, it should not be too difficult to improve your credit history.
After a period of inactivity, here are common strategies that can help you re-establish a healthy credit history length.
1. Start actively using credit again
The most straightforward way to improve your credit history is to start using credit again.
If you don’t have any open accounts, the simplest way to begin is to open up a new credit card account. Start using the credit card to make small purchases, that way you can easily pay off the balance each month without straining your savings.
2. Become an authorized user
If there is someone with whom you share mutual trust, you may want to ask them to add you as an authorized user to their credit card. As an authorized user, your credit history may benefit from their established credit.
3. Maintain a low credit utilization ratio
As you establish or rebuild credit, it’s a good idea to keep your credit utilization low and your available credit high. Your credit utilization ratio–which is calculated by dividing your total credit balances by your total credit limits–affects your credit score and creditworthiness.
Ideally, your credit utilization ratio should be kept below 30% so that it does not damage your credit score. If you find your credit balance going over 30% of your credit limit, you may want to make numerous payments in a month to decrease your balance.
The effects of missed payments on credit history length
Missing a payment or making a payment late has a negative impact on your credit behavior. Late payments will show up on your credit report and can remain there for up to seven years.
If you have plenty of missed payments throughout a long credit history, it suggests that you lack responsible management of credit and debt. In this case, the continuous display of poor credit behavior over the years can seriously harm your credit score.
However, if you only have a couple of late payments across a lengthy credit history, this suggests that you are overall good at managing your account balances and repayment terms. In this case, the effect on your credit score may be minimal.
The relationship between credit history length and loan approval
For those seeking a personal loan, the loan approval process can be daunting. Lenders assess your creditworthiness by performing a hard inquiry, which involves looking at your credit report. One of the major factors they consider when making loan decisions is your credit history length.
If you have a long credit history with fairly good to excellent credit behavior, you will be more likely to be approved for a personal loan with favorable terms and low interest rate.
The impact of closing credit accounts on credit history length
If you close a credit account, it may not necessarily have an effect on your FICO credit history length. This is due to the way FICO uses and calculates age-related metrics. FICO typically looks at both your open and closed accounts.
Still, closing an account could have a negative effect on your FICO credit score even if it does not change your credit history length.
Depending on the type of account you are closing, VantageScore might not count that closed account toward calculating credit age anymore.
This means that if you are closing an old account, you may want to consider it carefully since it might hurt your VantageScore credit score. If you need a good credit score for the purposes of securing a loan, a new credit card, or something else that requires a credit check, it is often better to leave old credit accounts open.
How to monitor and track credit history length over time
Effective monitoring of your credit history can help you stay on top of credit management. You can also spot potentially fraudulent activity and unauthorized credit checks by regularly checking your credit history.
To ensure your credit report shows a strong and accurate credit profile, track your credit report regularly and dispute any inaccuracies that show up. To dispute an unauthorized inquiry or incorrect change, reach out to each of the three credit bureaus.
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