We all know that credit is an important factor in our financial health and success. That’s the easy part. The confusing part can be how to build up your credit and what makes your credit good. Overall healthy credit history is an important factor, but what is a good credit history length?
What does length of credit history mean?
Length of credit history looks at age of accounts and the average age of accounts, how long specific credit accounts have been opened and how long it’s been since the account has been used. Accounts that have been open longer tend to have a better impact on your credit score. The credit score model is based on information analyzed by the three national credit reporting companies, TransUnion, Fico, and Experian, and can vary a bit between the three but the standard is pretty much the same, good credit history length is important.
How is credit age calculated?
Credit age is calculated using models that include information like the average age of your accounts, the age of your oldest accounts, how long they’ve been open, the type of credit accounts you have in your credit history, and how active your accounts are.
The exact metrics of these accounts and how they are calculated varies by credit reporting company. This information is available on your credit report which you can access for free annually.
How does your credit length affect your score?
Though your credit length is an important part of your score, it is not the most important part. In fact, your credit history length is typically about 15% of your score. Still important, but your credit length is not the most important factor used to calculate your FICO score.
You should still keep your credit age in mind when thinking about your credit score. It is taken into consideration when looking for loans suchs as mortgages and car loans. Having a long credit history not only shows that you have experience with credit but it also helps creditors feel more comfortable lending you money. As such, they will often use your credit history to assess your risk level.
Credit history vs credit age
Credit age means how long your credit accounts have been reported open. Credit history looks at everything involved in your credit. It looks at your accounts, payment history, any collections, just about anything related to your credit history. Your credit is the scoring algorithm that calculates the average of how long your accounts have been open.
How can I improve my credit history?
You might be wondering, “How can I improve my credit history?” Here’s how!
Get a secured card
Secured credit cards are a great way to improve or even start a credit history. Secured cards allow you to put down a deposit with a card company. This deposit eventually becomes your credit limit. You use the secured card based on the limit you’ve set, make payments, and the payments are reported to the credit agencies, in turn helping you establish a credit history.
Become an authorized user
If you don’t have your own credit card but someone you trust does, they can add you as an authorized user to their credit card. It is important that this person has good credit and is responsible for their credit. Being an authorized user on someone else’s credit card can help improve your credit score if they are making their payments, otherwise, it could also negatively impact your credit.
Obtain a credit builder loan
Credit builder loans are designed to help people with no credit build their credit. These loans are similar to savings accounts. You’ll make fixed payments, earn interest, and once the term of the loan ends, you’ll have access to the funds. While you’re paying off the loan, the payments are being reported to the credit bureaus, which helps you build your credit history.
Get a co-signer
Sometimes if you have no credit or bad credit, you can find a co-signer to sign on your loan. Having a co-signer can help increase your approval odds for the loan and help you start the process of building your credit. Co-signers are liable if you fail to pay or default on your loan. However, make sure that the loan amount is still something you can handle and afford without the help of a co-signer.
Healthy overall credit history is the goal
Good credit is the goal for most and that includes a lot of factors. Some factors are a little harder to manage but credit history is one that you can control. Be smart when considering opening a credit account and consider that this is the beginning of your credit history when opening your first credit card. Though it can only account for 15% of your score, credit age and long credit history are just as important as other factors that count towards your credit.
FAQ
What is a good length of credit?
2 years is acceptable for most creditors but 7 years is a good length of credit.
How long is a credit report good for?
Most items stay on your credit report for 7 years. You are entitled to a free credit report annually to stay up to date on any new changes.
Is 2 years of credit history good?
2 years of credit history is acceptable and better than none. Anything lower is usually harder to gauge your credit worthiness and risk level to lenders.
