Length of Credit History
Length of credit history, or your “time in the bureau”, accounts for 15% of your credit score. The older you are, and the longer you have had credit accounts for, the higher the score. This is broken down into 3 sub categories:
- Time since accounts opened.
- Time since accounts opened, by specific type of account.
- Time since account activity.
Your credit history length is important when it comes to understanding your score as a longer credit history is looked upon more favorably than a shorter one. Someone with a credit history of 6 months isn’t going to look as impressive as someone with a history of 6 years. It takes time to establish a payment history. Those with longer credit histories typically have higher incomes as well.
What’s Your Credit Score?
It’s easy to ignore the problems that are created by a low credit rating. Thinking about your credit history isn’t something many people do every day. At some point it will become obvious that the poor credit score is stopping you from moving forward. For most, the moment of understanding comes when it is time to make a big purchase, like purchase a home or a car.
Having a bad credit score makes it very hard to obtain a loan. Even if your score is somewhat decent and you can get approved, your will likely pay much higher interest rates. It may not seem like an additional 2% in interest will result in much, until you do the math. A mere 2% higher interest rate will result in thousands of extra dollars spent.
The first thing that you need to do in order to begin raising your score is to pull copies of your credit files and scores. You can do that by visiting Credit Viper.
There is so much misinformation out there about how your credit works. Let me dispel the myths right now with the exact information right from Fair Isaac, the creator of the FICO scoring system that is in widespread use. Your credit score is made up of five factors:
- The length of your credit history makes up 15% of your score. In other words, how long have you had things like credit cards, home loans, and auto loans. The longer the better. DO NOT under any circumstances close old unused accounts simply to clean up your credit report. This will hurt your credit!
- Obtaining new credit accounts for 10% of your score. When someone starts to apply and get approved for numerous credit accounts, lenders worry about over extension. They see this by looking at the number of “hard” inquiries on your bureau reports. Each hard inquiry can take 2-5 points away from your score and remain on your report for as long as two years.