Having no or slow credit can be difficult to climb out of. This is especially true since 15% of the FICO credit scoring formula is based on the length of your credit history. This means that recent graduates or anyone under the age of 25 will find it especially difficult to achieve higher credit scores. Fair Isaac reports that most FICO High Achievers” opened their first revolving account 19 years ago on average.
The concept is simple. The longer you have proven that you can manage credit accounts, the more likely that you can continue to handle credit in the future.
Credit bureaus reward long enduring relationships with your creditors by boosting your scores. Anyone can keep an account in good standing for a couple of months, but it takes dedication to maintain a positive account for a couple of decades.
Payment history and effects of debt balance ratios might be weighted more heavily, but duration still is a major credit scoring component. Potential lenders really look at how long you have been a good customer of their competitors.
Duration is measured both individually and collectively. That means that while a 15 year account will help you, a 1 year account will likely not boost your score and a collective 8 years average credit history length is a comparatively strong indicator of creditworthiness. According to Fair Isaac Corporation, “most FICO High Achievers have an average age of accounts between 6 and 12 years.” This average age of accounts measures the duration of your credit history.
Sometimes consumers feel the need to close unneeded lines of credit. This may be to avoid annual fees or to prevent the risk of fraudulent use of an account. Given that duration is such a strong indicator of good credit, it makes sense to consider how long you have kept an account open when deciding which accounts to keep.
Closing a 14 month account will likely not reduce your score. Closing a 14 year account may not immediately reduce your credit score, but it will cease to build to a longer tenure account. That will ultimately keep you from reaching even higher credit scores in the future. Therefore, when closing accounts, look for the least useful and most recently opened accounts as a starting point.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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