IRA vs 401k
May 29, 2019

Why Length of Credit History Matters

Written By Mary Beth Eastman
Last updated November 26, 2019

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The length of a person’s credit history is an important indicator of their financial consistency. A good credit history over an extended period of time shows lenders that the person has been able to reliably make payments and they are a low risk in the future for things like mortgages, car loans, and additional credit cards. Conversely, this also means that things like lots of accounts opening or closing within a short period of time can negatively affect a credit score.

Here the three main reasons why the length of your credit history is important.

A credit score is single the most important financial indicator tied to each person. There are a number of ways to increase a credit score, and the length of credit history is a crucial factor in determining this number. A person who has records of accounts that have been open for years without issue will seem like a worthy borrower.

The main ways history affects a score are the amount of time the account has been open, and how long it has been since the account was used.

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Payment histories are of particular interest to lenders. By looking at a person’s payment history that can get an easy answer to the question of whether a person is capable of making regular payments on time. Obviously, when there is a longer span of time represented in the payment history, this is even better.

Are you using the right credit card for your credit score? Regularly using a paying off your credit card will help raise your rating, and using the right card will help you financially.

If someone has a few missed payments within a year, this will obviously start to look bad and affect their credit rating. However, when someone who has those same few missed payments or even several more spread out over ten or twenty years, the effects of some negative items on their credit report become very negligible.

Keep in mind that a FICO score is based on a number of factors, but starting to develop a solid history is one of the most important things a consumer can do, and it accounts for at least 15% of your total credit score. Especially if you plan on getting things like a car loan or mortgage in the near future, starting to build a credit history now is crucial.

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