What the “history” of Your Credit Rating Actually Measures
Your credit history can be one of the most confusing parts of a credit score . Even if you practice good credit habits, your age can work against you. But aside from waiting patiently to get to the expert level, is there anything you can do to improve your performance?
The good news is that your credit history is only 15% of your total score, so being young or new to using credit won’t put you at a gigantic disadvantage. But age alone isn’t the only factor affecting this piece of the pie. “It’s not so simple how long you have a loan,” said Matt Schultz, chief industry analyst at CompareCards . “There is a certain nuance in this.”
For example, according to the MyFICO blog, there are three things that count when calculating this portion of your credit score when calculating FICO scores:
- How long have your credit accounts been opened, including the age of your oldest account, the age of your new account, and the average age of all your accounts.
- How long certain credit accounts have been opened.
- How much time has passed since the account was used.
Lenders not only want to know how long your accounts have been open – they also want to make sure you are using each one properly. “It’s really all about providing lenders with more data to help them make a decision,” Schultz said.
Brent Weiss, CFP and co-founder of Facet Wealth , said that when people don’t start using credit for fear of going into debt, they can be at a disadvantage in terms of valuation and history. He recommends getting a low-limit credit card as soon as possible so you can start building your story, whether you’re young or just new to using credit. “Think of it as an empowerment tool,” he said. “You have to start building that credit history and make sure payments are made on time.”
Since a large part of your assessment depends on your timely payments and how much of the available credit you use, it makes sense to focus on good habits in these areas rather than trying to end your story “There are none – no major cuts,” Schultz said. “It’s about doing the right thing over and over again.”
According to Schultz, if you are an authorized user of someone else’s account, it can increase your rank, but having accounts in your own name has a greater impact.
If you close a credit account in your own name with a good payment history, it will remain on your statement for 10 years. If you are no longer an authorized user , this story disappears immediately. You can see your score drop a few pips, but your score won’t drop much without this authorized status if you’ve been working on building your own good credit.