What Length of Credit History Is Good?

Credit history serves as a fundamental component of an individual’s financial identity, providing a detailed record of how debts have been managed over time. This historical account is compiled into credit reports by major credit bureaus, influencing access to financial products and services. Understanding the elements that contribute to this history is important for individuals navigating various financial decisions, from securing loans to renting property.

Defining Credit History Length

Credit history length refers to the duration of an individual’s credit accounts as reported to the three major credit bureaus: Equifax, Experian, and TransUnion. This metric is not simply the time since your first account opened; it also considers the average age of all open accounts and the age of your newest account. Credit reports track the opening date for each credit line (e.g., credit cards, loans, mortgages). A longer period of established accounts indicates more experience managing credit, viewed favorably by lenders.

The calculation of credit history length factors in both open and closed accounts, as long as they remain on your credit report. For instance, a closed account in good standing can stay on your report for up to 10 years and contribute to your credit history length. This detailed record offers financial institutions a perspective on an individual’s long-term financial behavior and consistency.

Credit History Length and Credit Scores

Credit history length holds significance in major credit scoring models, such as FICO Score and VantageScore, though its weighting differs. For FICO Scores, it accounts for about 15% of the overall score. VantageScore models assign a higher influence, around 20-21%, combining it with the mix of credit accounts. A longer history generally has a positive influence on these scores, demonstrating a sustained ability to manage debt.

While a lengthy history is beneficial, it is one of several factors contributing to a credit score. Payment history, reflecting on-time payments, is the most influential factor for FICO Scores (about 35%) and highly influential for VantageScores. Credit utilization, the amount of credit used compared to available credit, is another significant factor, accounting for 30% of a FICO Score. Therefore, even with a shorter credit history, consistent on-time payments and low credit utilization can help build a strong credit profile.

Strategies for Building Credit History

Individuals can use several strategies to establish or extend their credit history. One common approach is to open a secured credit card, which requires a cash deposit that often becomes the credit limit. This deposit acts as collateral, reducing issuer risk. Payments made on the card are reported to credit bureaus, helping to build a payment history. Many secured cards offer a path to transition to an unsecured card and have the deposit returned after responsible use.

Becoming an authorized user on a trusted individual’s credit card account can also help build credit history. When added, the authorized user’s credit report reflects the account’s payment history and credit limit, potentially benefiting their score. The primary account holder must maintain on-time payments and low credit utilization, as their behavior impacts the authorized user’s credit. Another strategy involves a credit-builder loan, where the loan amount is held by the lender while the borrower makes regular payments. These payments are reported to credit bureaus. Once repaid, the borrower receives the held funds, simultaneously building credit and savings.