Just like a fine wine, your credit score can improve with age. How long you’ve had credit affects your credit score -- but it takes time to build a robust credit profile to show lenders you’re a reliable borrower.
Though factors such as payment history and amounts owed account for more than half of your credit score, the age of your accounts is another vital piece of the puzzle. Here’s how the length of your credit history affects your credit score and what you can do to improve your credit score if you have to close a credit account.
What is your length of credit history?
Your length of credit history makes up 15% of your credit score and includes the age of your oldest credit account, your newest account and the average age of all your credit accounts. When a lender pulls your credit file, a short credit history may be a red flag since a shorter history doesn’t offer the same insight into your credit habits as a more extended credit history would.
How does length of credit history affect your credit score?
The length of your credit history can significantly impact your credit score and whether or not you qualify for a new credit card, loan or new line of credit. According to FICO, a longer credit history, including the average age of accounts, will help boost your score. When lenders pull your credit report, and your credit history has a low average age of accounts, they may be more reluctant to approve you for a credit card or loan. That’s because they may not have enough data on your financial habits if your credit history is new or thin.
However, since the length of your credit history only accounts for 15% of your score, don’t be discouraged if you’re a new credit user. As you work to establish credit, your score will naturally increase if you pay your credit accounts in full and on time and as you lengthen your credit portfolio.
How is length of credit history calculated?
Length of credit history is worth 15% of your overall credit score under FICO’s credit-scoring model and approximately 21% of your VantageScore (3.0). VantageScore also considers the various types of credit accounts like revolving, retail accounts and installment loans. FICO, however, considers credit mix a separate category, accounting for an additional 10% of your score.
Here’s what FICO considers when it calculates your length of credit:
- How long your credit accounts have been open, including the age of your oldest account, the age of your newest account and the average age of all accounts
- How long specific credit accounts have been open
- How much time has passed since the accounts have been used
Various credit scoring models, like FICO and VantageScore, get access to this information when they pull your credit report from the three credit bureaus, Experian, TransUnion and Equifax. You can order a free credit report every 12 months from AnnualCreditReport.com. In response to the COVID-19 pandemic, each of the three bureaus offered a free weekly credit report. (This offer remains in effect as of March 2023, so you should be able to receive a free copy from each bureau, even if you’ve already requested one this year.)
Does closing an account impact your length of credit history?
Closing a credit card account can hurt your credit by changing the length of your credit history and increasing your credit utilization. Removing one of the oldest credit accounts from your credit history, for instance, can shorten the average age of your accounts and could result in your score dropping. The good news, however, is that a credit card in good standing remains on your credit report for 10 years, so the implications don’t affect your credit immediately.
Credit utilization measures how much credit you have compared to the amount of debt you carry. It makes up 30% of your credit score. For example, if you have a credit card with a $5,000 limit, and your current balance is $1,000, you’re using 20% of your total available credit for this card. Lenders generally like to see a credit utilization rate under 30%.
When you close a line of credit, your credit utilization rises as your total available credit decreases. This increase in credit utilization dings your credit score, so carefully consider your options before canceling a credit card.
What is a good average length of credit history?
There isn’t a hard and fast rule that determines the perfect age of credit. Still, it’s true that a longer credit history will have a more positive impact on your credit score than a shorter one.
However, if you’re working on building your credit score from scratch and you’re worried about how long it takes to establish a score, FICO will begin generating a score once your account is six months old. You may generate a VantageScore even sooner, approximately one or two months after you open a credit account.
How do I improve my length of credit history?
Ultimately, it takes time to improve your length of credit history. But while you’re waiting for this factor to improve, there are some things you can do to maintain good credit habits and keep your other credit factors in check:
- Don’t close old credit accounts if you don’t have to: In some cases, closing a credit account happens organically, like when you pay off a student loan bill. But that’s not the case with credit cards. If you’re having a hard time paying down a high balance or keeping up with a high annual fee, it might make sense to close a card. But you’re still responsible for paying off the balance. If you don’t have a high annual fee or APR eating away at your wallet, keeping a credit card in good standing open will benefit your credit score in the long run.
- Become an authorized user: If you have limited or no credit, becoming an authorized user on someone else’s credit card account is one way to boost your credit score while improving your length of credit history. Authorized users receive a card connected to the primary cardholder’s line of credit. While this can help boost your score if the primary cardholder makes on-time, responsible payments, if they miss a payment or can’t repay a balance, it can also have a negative impact on your credit report.
- Be intentional about opening new credit accounts: New credit accounts bring down the average age of your credit, so it’s important to be intentional about opening new lines of credit. And opening a new credit account results in a hard credit check on your report, which can drop your FICO score by approximately five points per inquiry. You can reduce the impact of hard inquiries by applying for new lines of credit strategically and selectively.
The bottom line
Your length of credit history plays a vital role in determining your credit score, but it will take time to establish a lengthy credit history. In the meantime, keep your credit accounts in good standing and avoid closing old credit accounts if you don’t need to. While the length of your credit history is one of many factors contributing to your credit score, the factors can be interdependent. Remember that even the smaller pieces of the puzzle carry weight, so practice responsible credit habits to keep your credit on track.
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