COMPONENT 3 –
LENGTH OF CREDIT HISTORY
15% OF YOUR CREDIT SCORE

Keep in mind that lenders do not know you personally, so they use your credit report and your credit score to gauge your financial character and whether they want to give you credit or not. Your credit score consists of five different components. The financial steps you take can hurt or help your scores and sometimes can hurt you in one component and help you in another. The one explained here with tips on how to improve your credit score is Length of Credit History, which makes up 15% of your Credit Score. This component reviews how long you have had credit. 

Regarding the length of credit history, your score comprises of how long you have had your accounts and what the average length is of these accounts. Keep in mind that sometimes creditors may close credit accounts if you have not utilized them in a while. For example, you may have a credit card that you have not used in a while that gets closed by the lender. Typically, but not always, they will notify you before they do this. 

STEPS TO IMPROVE YOUR CREDIT SCORE REGARDING LENGTH OF CREDIT HISTORY

– Start building credit early, at or near 18 years old.

The reason that 18 is the earliest you can apply for credit is that lenders are not allowed to charge minors interest. For some starting credit at 18 will occur as they get student loans around this age. For everyone, I recommend applying for a credit card when they turn 18. Student loans will eventually be paid off and will stop being a part of this component in terms of your credit score. If you get a credit card at 18, this will stay as your oldest account and will also help keep your average length of credit history higher. If lenders will not approve you for a credit card due to lack of credit history, you could apply for a secured credit card using your own money. Starting at 18 helps you as there are two benchmarks to be mindful for in this component:
7 years and 25 years. Once your oldest account is over 7 years old this is considered having a good length of history; once it becomes over 25 years old then this is considered excellent length of history. At both these points your credit score will go up due to a change in status of your length of history from okay when under 7 to good at 7 and then to excellent at 25.

– Be conscious of applying for credit cards with annual fees.

Credit cards have annual fees for one of three reasons: you have no credit, you have bad credit, or the rewards that come along with the credit card are great. For those with no credit, try looking for a first credit card that does not have annual fees. Sometimes people close credit cards after establishing credit because they no longer want to pay the annual fees. However, this account should never be closed as this will help establish the longest part of your credit history. For those with bad credit, they may have to settle for paying the annual fees so that they can use this credit card as a tool to build their credit. For those looking for great rewards, they may be tempted to close the credit card if the rewards no longer justify the annual fees that they are paying. For all of these, keep in mind that you do have an option to call the credit card company and convert the account to another type of credit card they may offer that does not have annual fees. Be careful that they do a conversion and do not do this by closing the account and opening a new account as this will lower your score in multiple ways such as removing your history of making payments on that card, counting as a new inquiry, and lowering your overall average for your credit accounts.

– Avoid closing your unused or paid off credit cards. 

Closing the account will lower your score by removing your history of making payments on that card, lowering your total available credit for revolving accounts, and lowering your overall average for your credit accounts. There are circumstances where this option may make sense as the benefits of a temporary drop in credit may help in making financial decisions long term that raises your credit score more than the drop. However, this approach should be taken with caution as closing an account is not reversable. 

– Be mindful that opening new accounts will lower your overall average length of history.

Other Credit Components