How length of credit history affects your credit score –

How length of credit history affects your credit score –

How long it takes to raise your score

The length of time it takes to raise your credit score depends on a combination of multiple aspects. Your financial habits, the initial cause of the low score and where you currently stand are all major ingredients, but there’s no exact recipe to determine the timeline. Thanks to studies done by CNBC and FICO, we’ve compiled the typical time it takes to bring your score back to its starting point after a financial mishap. The following data is an estimate of recovery time for those with poor to fair credit.

Event Average credit score recovery time
Bankruptcy 6+ years
Home foreclosure 3 years
Missed/defaulted payment 18 months
Late mortgage payment (30 to 90 days) 9 months
Closing credit card account 3 months
Maxed credit card account 3 months
Applying for a new credit card 3 months

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Does Getting a New Credit Card Hurt Your Credit?

Getting a new credit card can hurt or help your credit, depending on your situation. It can help to increase your credit mix and improve your credit utilization percentage, but it will add a new hard inquiry to your account and make your average credit age younger—both of which could lower your score. For those in the credit-building stage, adding a new credit card will most likely lower your score in the short term but also lead to a stronger credit score in the long term.

How Long Does It Take to Rebuild Credit?

Typically, it takes at least 3-6 months of good credit behavior to see a noticeable change in your credit score. It is difficult to make a change any faster, unless the negative information on your credit report was a minor blip, like being late with bill payments one month.

While it is impossible to put a specific time frame on credit repair, it is safe to say the less negative information you have on your report – late payments, maxed out credit cards, constant credit applications, bankruptcy, etc. – the easier it is to repair your credit score.

It takes more time to repair a bad credit score than it does to build a good one. Mistakes penalize your credit score and can prevent you from being approved for a loan. Though there are lenders that offer loans with bad credit, they end up costing hundreds or thousands of dollars in higher interest rates when borrowing. A poor credit score also can be a roadblock to renting an apartment, setting up utilities, and maybe even getting a job!

You are not going to lose nearly as many points if you are late with one payment as you will if you are delinquent for several months to the point where your account has been turned over to a collection agency. The severity of the second situation is far greater than the first and your score will reflect that.

Here are some time frames for negative information that detracts from your credit score.

  • A delinquent account remains on your credit report for seven years.
  • Car repossession stays on your report for seven years.
  • Chapter 7 bankruptcy is on your report for 10 years. Chapter 13 remains for seven years.
  • Credit application inquiries remain on your report for two years.
  • Public record items such as property liens are on your report seven years.

Remember that the damage to your credit score diminishes over time. So, for example, a Chapter 13 bankruptcy in Year Six has negligible impact when compared to its effect in Year One.

10. Keep Old Accounts Open

Even if you no longer use an old credit card, it’s typically best to keep the account open. That’s because your credit scores benefit from a long credit history and a high total credit limit. Closing established accounts will shorten the average age of your accounts and lower your total credit limit.

It will take years before an account closed in good standing drops off your credit report, but the effects on your credit utilization rate are immediate. If a credit card comes with a high annual fee you can’t afford, closing the account could be a good option—or ask your issuer to downgrade the card to a no-fee version if possible.

Leave Old Accounts Open and Keep Them Active

Credit age is important when it comes to your credit score. Your credit score considers both the age of your oldest account and the average age of all your accounts. Keeping old accounts active helps you have a mature credit age.

5. Get a Credit-Builder Loan

If you’re focused on building credit from scratch or recovering after a hit to your score, a credit-builder loan from a credit union could help. You’ll make fixed payments for six to 24 months, and your money will sit in a savings account you’ll be able to access at the end of the loan term. In the meantime, the lender will report your on-time payments to the credit bureaus, strengthening your score.

7. Consider Consolidating Your Debts

If you have a number of outstanding debts, it could be to your advantage to take out a debt consolidation loan from a bank or credit union and pay off all of them. Then you’ll just have one payment to deal with, and, if you’re able to get a lower interest rate on the loan, you’ll be in a position to pay down your debt faster. That can improve your credit utilization ratio and, in turn, your credit score.

A similar tactic is to consolidate multiple credit card balances by paying them off with a balance transfer credit card. Such cards often have a promotional period when they charge 0% interest on your balance. But beware of balance transfer fees, which can cost you 3%–5% of the amount of your transfer.

Considerations for Getting a Credit Builder Loan

There is one potential pitfall if you’re considering getting a credit builder loan. 

If the loan that you get has too short of a term, it could hurt your length of credit history. For example, only getting a 12-month credit builder account could hurt your credit score by lowering your average credit account length. 

Most credit builder loans have terms of just 12 to 24 months.

A Credit Strong credit builder loan gives you the option to obtain an account that can build up to 120 months of payment history, 10 times the length of credit history of a ‘typical’ credit builder loan. The long repayment period gives you a great tool to improve your length of credit history. 

No other credit builder loan on the market offers this long of a repayment term timeline.

Best of all, Credit Strong accounts have no prepayment penalty or early withdrawal fees, so you can cancel the account at any time for free if your personal financial circumstances change unexpectedly. The lowest plan starts at just $15 per month, so it’s affordable for anyone who wants to build their credit.

What is length of credit history?

Your length of credit history is basically how long you’ve been using credit, and it accounts for 15% of your FICO score. FICO breaks down “length of credit history” into three components:

  1. How long accounts have been open
  2. How long specific account types have been open
  3. How long it’s been since those accounts were used

“The minimum amount of credit history needed to generate a FICO score is six months or more on at least one credit account,” said Paperno.

That means a consumer who opened their first credit card three months ago – and had no other loans – would not yet have a FICO score, regardless of how responsible they’ve been with that card.

How does length of credit history affect your FICO score?

Your length of credit history makes up 15% of your FICO score. That may not seem like a lot, but it can still have a significant impact on whether or not you qualify for a loan.

This is particularly true for people who are new to credit. If you have a thin credit file, lenders have less information they can use to determine how well you manage your credit accounts and the likelihood that you’ll default.

That said, a low average age of accounts can also make it difficult to get access to credit, even if you’ve been using credit for years.

That’s because a low average age of accounts indicates that you apply for credit regularly, which could signal that you’re having trouble managing your money without the help of credit. Also, the more credit accounts you have open, the more monthly payments you have. Spreading your budget thin could make it more challenging to keep up with payments on a new credit account.

Bottom line

Your length of credit history is a moderately important factor in your credit score; however, it’s largely out of your control. A closed account will stay on your credit report for up to 10 years, so it will continue to contribute to your length of history long after you make the change.

Opening new accounts will reduce your average age of credit, but will likely have a more significant positive impact on other credit score factors. If you keep your accounts open, pay them on time and keep your balances as low as possible, your credit will grow old gracefully and your score will stand the test of time.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Age of Credit Accounts: Be Patient

One of the other major contributing factors to credit scores is the duration of time your credit accounts have been open. The longer the better. This is where patience comes into play. There is very little you can do to improve your score from this angle, outside of opening up a credit account as quickly as possible, and waiting for it to mature.

How To Maximize The Age Of Your Credit Account

Become An Authorized User At An Early Age. Earlier in the guide, we mentioned that becoming an authorized user can be a great way to establish credit when you have none to begin with. Another benefit of this method is that you can establish a credit account at an early age – even as young as 16. This will give you a jump start on your “credit age.” Provided that the account is not closed before you reach adulthood, it will benefit your credit score greatly by opening up your own lines of credit once you’re old enough.

Do not close credit accounts unless it’s absolutely necessary. Keeping credit accounts open is key to maximizing your credit score. Closing down an account, even voluntarily, can have a strong, negative impact on your FICO score. The older the age of the account, the larger the hit to your score. This is why you should avoid having to have your first credit account be one on which you do not pay an annual or monthly fee. Opting for a “free” account means there will be little to no harm in keeping it open indefinitely, and your FICO score won’t be at risk.

Why is age of credit history important?

When making lending decisions, lenders review your credit history to determine how likely you are to repay your loan on time. A longer history shows you have more experience using credit, while a short credit history shows you have less experience.

In theory, the longer your credit history, the more accurate lenders can be in determining the level of risk they take on when lending to you.

4 Tips to Increase Your Credit Score t0 800+

By the time I was a senior in college, my credit score was already effectively in the top range, at 800+, and I’ve kept it there ever since.

FICO Score:

VantageScore:

VantageScore:

These are the steps I took: 

These are the steps I took: 

  1. Became an authorized user on my father’s card when I was a teenager.
  2. Acquired my own low-limit card when I was 18, and never missed any payments.
  3. Never carried any credit card debt between months, and never had a high credit utilization ratio.
  4. Took out student loans, and paid them back consistently on time.
  5. Opened a couple premium credit card accounts, with great rewards.
  6. Never closed any credit card accounts, because they increase my average credit account age.
  7. Avoided opening too many new accounts, because they would reduce my average credit account age.
  8. Increased my credit card limits as appropriate.  My credit utilization ratio is less than 2%.
  9. Monitor my score over time to see areas of improvement.
  10. Check my credit reports regularly and ensure there are no errors.

Naturally, if you’re reading this, you’re at a different starting point than me, and have your own unique circumstances.

A lot of the things here just take time; having a strong payment history and increasing the average age of your accounts can take a few years. You need to spend less money than you make, so that you can pay down any high-interest debts you might have, and build some cash reserves so that you always have plenty of cash to pay all your bills going forward.

But, besides doing those long-term necessities, here are the 4 biggest impact things you can do this month to start improving your FICO and VantageScore fast:

1) Check Your Credit Reports

The three credit reporting agencies, active in many countries, are Experian, Equifax, and TransUnion. They’re the companies that keep detailed records of your credit and make it available to people that request it.

Thanks to the Fair and Accurate Credit Transactions Act, all three companies are required to provide U.S. residents with a copy of their credit report if requested, once per 12 months.

They do so through the website AnnualCreditReport.com; that’s the only source for free credit reports authorized by this Act.  They don’t show you the scores for free, but they show you their records of your payment history, so you can check to make sure there are no mistakes. The website lets you check your detailed report one time from each of the three credit rating agencies per year.

If you’re planning on making a big purchase, or if you are fixing severely bad credit or found some mistakes in one report, then you might want to check all three at once. On the other hand, if you’re more in “maintenance mode” and just want to check your credit regularly for errors, then the optimal strategy is to check your report from one of the agencies every 4 months.  That way, you can spread your three free reports out evenly over the year for the most up-to-date info.

You can also pay a fee to receive more information on that site, like the actual score, but there are better free ways to do that:

  • Discover Financial lets you check your FICO score for free, here.
  • Credit Sesame lets you check your VantageScore for free, here.

The great thing about them is they analyze your credit usage to show you specific things you can do to increase your score.

It’s hard to fix your credit if there are negative mistakes in your credit report holding you back. Make sure they’re accurate!

2) Optimize Your Credit Utilization Ratio

If you already have one or more credit cards, this could be the biggest move to make if you want to get to 800+. It’s the second most important factor that affects your credit score, since it accounts for about 30% of your score.  You can change it quickly, and it has a major impact if you get it right.

Ideally, you want a credit utilization ratio of below 10%.

First, if you carry a credit card balance from month to month, pay that off asap. The interest rates are horrendous and it’s negatively impacting your credit utilization ratio.

Second, if you have two cards that each have, say, a $7,500 credit limit, and you have $6,000 in debt on one card (80% utilization) and only $1,000 in debt on the other card (13% utilization), then try to balance them out. Pay down the higher debt one first, so that none of your individual cards have a very high credit utilization ratio.

Third, even if you do pay off your credit card balance each month, your payment timing might be unfairly hurting you. Credit card issuers usually report your credit information to the credit rating agencies once per month, around the end of your billing cycle.  But what if you just paid for a major $3,500 car repair on your $5,000 limit card right before they report your credit utilization?  They’ll say you have a 70% credit utilization ratio, which is bad, even though you always pay your card off every month.

There are two main ways to fix that:

  1. Pay your cards off 2-3 times per month instead of once per month to keep your balance low at any one time. If you make a major purchase, pay the card off right away to get your credit utilization ratio back down.
  2. If your credit score is already decent and you’re looking to make it exceptional, then ask your card issuers to increase your credit limits on your cards. For any given level of spending, a higher credit limit will mean that you have a lower credit utilization ratio.  Alternatively, you can open one more credit card account (don’t go overboard), so that you can split purchases more evenly and keep a low credit utilization ratio.

3) Get a Secured Credit Card

If your credit score is very low or nonexistent, and you don’t have any credit cards, then consider getting a secured credit card.

A secured credit card is a low-limit card that a bank can issue to you, that requires you to pay them a security deposit up front. That way, their risk is low and they can afford to give a small credit line to people with low or no credit.  Many of the major issuers, like Discover and Capital one, have good offers on secured cards.

Typically, the credit limits are tiny, like $200 or less.  Pretty much the only reason secured credit cards exist is to help people build credit. Start making some purchases with the card, and pay it back in full every month. Over time, you’ll start building a positive credit history.   Make sure your other payment types (utility bills, student loans, mortgage, auto loans, etc) are paid on time as well.

Eventually, when your credit score is higher (and you have good credit card habits), ask your issuing bank to convert your account to a normal, unsecured card. This way, you can get a higher limit, get better rewards, and get your security deposit back.

Whatever you do, don’t close your secured card, unless for some reason you absolutely can’t handle having credit.  You want to start building a long-lasting credit account, because average credit age is a big factor for your credit score. So, once your score is up, convert it to a better card.

4) Diversify Your Credit Mix

The diversity of your credit mix accounts for about 10% of your credit score. It shows the credit rating agencies that you can responsibly manage several types of debt.

Don’t take out debt you don’t need, because it results in unnecessary interest payments. However, you can be strategic with your debt.

For example, if you have credit card debt and your credit score is decent, then taking out a peer-to-peer loan, like with Lending Club, can help you pay off your higher interest rate credit card debt and diversify your credit mix at the same time.

Or, let’s say you just have student loans, and you need to get a car. Taking out a small auto loan to finance part of it, and paying down some of your student loans quicker with the cash you save up front, means your credit is more diverse.

Cancelling Excess Cards

If someone has multiple cards, they can consider cancelling a card or two that have the least amount of time open. Thatwould help increase the average credit age and potentially boost a person's credit score. Please be careful to consider the impact on the credit-utilization ratio, because closing a credit card may inadvertently increase this ratio.

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