FICO credit scoring models reserve 15% of their formulas for factors that indicate duration of credit history. While having an account open for many years definitely helps increase your average account age, most lenders want to see that you have established a number of accounts with a lengthy credit history in order to classify you as a lower credit risk. Of course, those accounts must be in good standing to actually help you.
| “Number of Established Accounts” | Credit Score Risk Factor Codes |
| Equifax | 28 |
| Experian | 28 |
| TransUnion | 28 |
| NextGen | N2 |
This scoring code may also be a factor in the 10% of credit scoring formulas that reward a good mix of credit accounts. Essentially, that portion of the puzzle rewards consumers who have both revolving credit accounts and installment loan accounts in their credit histories.
If you have several credit accounts listed on your credit report, it is unlikely that you would ever encounter this risk code. However, if you have a relatively empty credit report, or if it only shows collection items from non-credit accounts, then you may be impacted by this factor as well as several other negative factors.
If you have a low number of established credit accounts, then you need to take baby steps. No lender will approve a big loan for someone with no credit. Instead, you need to focus on the types of accounts that are normally approved for someone with a short credit history.
First of all, make sure that you carefully research which credit account you think you can qualify for. Applying for multiple accounts in a short period of time can place too many recent inquiries on your credit report.
A store card may be a possible option if you have limited credit. A secured credit card is also a feasible first step. While the interest rate can be high and the credit limit low, it can be a starting point. In order for the account to help you, it will need to show periodic use and a zero or very low balance. Using the account once every 3 or 4 months is sufficient enough to show frequent use.
You may also consider obtaining an installment loan with your bank or credit union (not a finance company). To increase your chances of approval, you can pledge $1,000 towards a certificate of deposit (CD) as collateral for a $1,000 loan. You should make on-time payments on the account to avoid any negative repercussions. While paying the loan off too early will not help you, it is probably OK to pay it off when at least half of the normal term has commenced so that you reduce your overall finance charges.
In some circumstances, a cosigner may help you with approval for a credit account. However, if someone does cosign for your account, you have an incredible responsibility to ensure that the account is kept in good standing. A single late payment can injure their credit rating as well as yours.
Remember that the account needs to be properly aged to provide meaningful benefit. Revolving accounts should be kept open in good standing at least 2 years to provide this benefit.
Number of established accounts is credit bureau risk score reason 28. It is NextGen score code N2. For more information on credit scoring, see the complete list of credit sccore factors.
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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