Building good credit takes time, and a lengthy credit history can help boost your score.
While other factors may play a larger role in determining whether your score is high or low, it’s important you understand how your credit history affects your credit standing.
How length of credit history is determined
First, it’s important to distinguish between “payment history” and “credit history.”
Your payment history refers to whether you pay your bills on time, while your credit history means how long you’ve used credit.
Both are among the five factors that determine your credit score, but it’s important to note that payment history makes up 35 percent of your score. By contrast, your credit history makes up only 15 percent of your total score.
You can break down credit history even further by looking at the following factors, which you can think of as sub-factors when it comes to tallying your score:
- How long ago you established your first account
- When you opened your most recent account
- The average age of your accounts combined
- How long it’s been since you used credit
While credit history isn’t the most important factor in your credit score, it can make a difference.
Someone who’s been using credit consistently over the past 20 years is likely to have a higher credit score than someone who just opened their first credit card.
Length of credit history vs. credit age
You can also distinguish between credit history and credit age.
The length of your credit history is a measure of how long any single account has been open and active—this is why closing an account can actually hurt your credit score, especially if you opened the account a long time ago.
Now, your credit age is an average of all your accounts.
For example, you might have one credit card you opened in college 15 years ago, a mortgage you took out 10 years ago, and an auto loan that’s three years old.
The average age of all these accounts is your “credit age.”
How length of credit history affects your credit score
Lenders care about your credit history because they want to see if you have a track record of using credit responsibly.
Someone who is just starting out is a blank slate in the credit world. For creditors, it’s hard to predict how this type of person will use credit.
But an individual with a 30-year record of credit use is much easier to evaluate.
If they’ve paid their bills on time for that many years, there’s a good chance they’ll continue their positive habits.
How credit history correlates with age
As you might expect, there’s a correlation between the length of credit history and a person’s age. In other words, a 60-year-old is more likely to have a good credit history than someone who just turned 18.
You can check out this chart from Credit Karma to get an idea of how a person’s age is a reliable predictor of their credit history.
Other credit score factors
Your credit history is one of five factors that make up your credit score.
Moreover, some factors carry more weight than others.
Here’s how they break down:
As you can see, your payment history and your credit utilization are the biggest slices of the pie. Next comes credit history, followed by mix of credit and the amount of new credit you have.
Generally, you want to focus on improving every factor. However, this isn’t always possible.
For example, if you’re a college student with no credit history, your lack of credit use is going to pull down your credit score.
In that case, it’s a good idea to focus on the things you can change, such as your payment history.
By opening a credit card and paying it off (and on time) each month, you can boost your score in just a couple of months.
How closing an account impacts your credit history
In most cases, it’s best to avoid closing old accounts. This is because older accounts make the length of your credit use stretch back farther in time, lengthening your credit history.
When you close an account—especially an old one—you shorten your credit history, which can drag down your score.
Unless an account has a high annual fee or other costs, it’s better to leave the account open, even if you no longer use it.
5 tips for building credit if you don’t have any credit
So how can you build credit if you don’t have credit? It may seem like a bit of a chicken or egg scenario, especially if you’re just starting out.
The good news is there are several proven strategies for establishing yourself in the credit world.
Here are five to consider.
1. Open a secured credit card
Secured credit cards are designed for people who are either rebuilding bad credit or trying to establish credit from scratch.
With a secured card, you put down a fixed amount of money, which the credit card company uses as a security deposit. Different cards have different requirements, but most deposits are in the $50 to $300 dollar range.
Your deposit is also your credit limit. If you miss a payment, the lender can keep your down payment to cover its loss.
The goal is to make small purchases and pay them off every month. The credit card company reports your on-time payments to the credit bureaus, which helps you build a positive payment history.
2. Always pay on time
No matter what type of credit account you have, always pay your bills on time.
Your payment history is the most important factor in your credit score, and even a single late payment can do significant damage to your score.
3. Get a store credit card
If you’re new to credit, you might have a hard time qualifying for a major credit card. However, store cards are typically easier to get.
Most retailers these days offer their own credit cards, which you can use to charge purchases you make in their stores.
The interest rates tend to be higher, but this isn’t an issue if you pay off your balance each month.
4. Become an authorized user
If you can’t get credit on your own, try borrowing someone else’s. You can do this by becoming an authorized user on another person’s account—usually a parent or other close relative.
If you go this route, however, make sure the creditor reports authorized user activity to the credit bureaus. That way, you get credit for the payments you make.
5. Take out a credit builder loan
With a credit builder loan, the lender holds a modest deposit in a kind of savings account, and you make payments toward the balance. When the loan is paid in full, you receive the money, plus any interest.
If you already have a savings account at your bank, ask about credit builder loans. You can also find them at credit unions, or even online at Self Lender.
5 tips for improving your credit score now
Building credit takes time, but there are things you can do today to start seeing improvements in your score tomorrow—or at least within the next month or so.
1. Dispute negative items on your credit report
One of the fastest ways to improve your credit score is getting credit bureaus to remove errors and negative items.
If your credit report contains a mistake, the credit bureaus are legally obligated to delete it. Even if the information on your report is accurate, you might still have a shot at persuading the bureaus to remove it.
Of course, you can’t work on improving your credit score if you never look at your credit report.
By law, you’re entitled to a free credit report from the three credit bureaus once every 12 months. You can get yours by visiting annualcreditreport.com.
2. Always pay on time
Your payment history accounts for 35 percent of your credit score, and late or missed payments can linger on your credit report for up to seven years, so do whatever you can to pay on time, every time.
On the other hand, everyone makes mistakes.
If you have a late payment or two on your credit report, it’s worth trying to get your lender to remove it.
Check out our guide to getting a late payment removed from your credit report.
3. Keep your credit utilization rate under 30 percent
After your payment history, your credit utilization—the ratio of how much available credit you have compared to how much you’re using—is the most important factor in your credit score.
As a general rule, you should strive to keep your credit utilization below 30 percent. For example, if your credit card has a $5,000 limit, you should keep your balance below $1,500.
You can also try to get an increase to your credit limit, which will also help your utilization.
4. Mix up your credit
Potential lenders prefer borrowers to have a mix of different credit accounts, as this shows that you don’t rely on just one type of credit.
For example, if your debt is nothing but student loans, lenders might assume you don’t have the financial resources to handle a mortgage. Likewise, if you have nothing but credit card debt, this can be a red flag to lenders.
You shouldn’t run out and get a loan just to diversify your credit, but it’s good to mix things up if you get the opportunity.
5. Avoid taking on too much new credit at once
“New credit” accounts for 10 percent of your credit score.
If you open too many new accounts at once, this can make lenders think you’re struggling to handle your financial obligations.
Applying for new credit also counts as a hard inquiry against your credit report, and if you accumulate too many hard inquiries within a short period of time, it can hurt your credit score.
Final thoughts
Establishing a credit history takes time.
Fortunately, there are plenty of things you can do now to boost your score.
Paying your bills on time, mixing up your types of credit, and keeping your credit utilization low are all excellent ways to increase your score.
If you focus on these factors, a good credit history will come with time.
