Length of Credit History – Does it matter?
A credit history is an assimilation of number of accounts in your credit reports, payment history, your amount of debts, and the score that is obtained after analyzing all these details. This information is used by lenders while giving loans or selling expensive products. Lenders will be basically interested in the “length of credit history” when they evaluate the paying capacity of borrowers. By length of the credit history, it means how long you have had taken credits and where does your credit score stands currently.
What is Length of Credit History
It simply means how long you have had credit; the age of the information in your credit history. Your credit report also has an age like every other tangible asset you possess. And, that age of the credit report has a 15% impact on your overall credit score. Hence, a positive or a negative credit history may influence your credit score likewise. In the world of FICO score, the Length of Credit History has a significant impact on your total credit score. This is one area where you have very little control and it is highly imperative that you develop a thorough understanding of this concept.
How is it calculated?
By knowing how Length of Credit History is calculated, you might be able to control it at some point. Credit specialists have suggested various ways and points from time to time to calculate this in the most appropriate manner. Of all the information obtained, here is the summary of factors that play a role in the calculation of the age of credit history:
1. There of customer’s oldest credit account
2. The average age of all the credit accounts opened to date
3. The age of customer’s newest credit account
4. Length of different types of credit accounts that has been established
5. Length of different types of credit accounts that has been consistently used
Out of all these, the age of the oldest account and the average age of all the accounts used to date play a crucial role.
How you can use your length of credit history to improve your FICO score?
It all comes down to your current FICO score. In general, active and current accounts have a larger influence on your current FICO score than the older accounts. The most recent activity has a greater impact on the overall credit score. However, if you have an older account that is debt-less and still active, it will fetch you a very good score than a recently opened credit account. Having old account can be, therefore, highly beneficial when it comes to improving your credit score.
Summary: Length of Credit History
Hold on to your older accounts and think twice before closing them. With older accounts active, you can easily score high in this category.