What Is a Good Length of Credit History?

What is considered a good length of credit history?

A good length of credit history is generally 7 to 10 years for most top-tier financial products, but you have to start small and build your credit history over time. As a general rule, lenders and creditors will consider you a stronger borrower the longer your credit history. If using credit is like building muscle, a longer history equates to more time in the gym.

Credit length history factors for loan approval

If you’re considering applying for a loan, ask yourself these questions to get a sense of what lenders are factoring to determine your credit history length:

• What is the age of your oldest account?
• What is the average age of your accounts?
• How many accounts have you opened within the past year?
• How long has it been since you last opened a new account?
• How many inactive accounts do you have?

You’ll most likely need more than 7 years of credit history if you’re applying for large loans, premium credit cards or mortgages, but some lenders may require only three years of credit history for small loans or no-annual-fee cards.

If the oldest account on your credit report is less than three years old, build a longer credit history before applying for major loans. If your oldest account is between 3 and 7 years old, you’re getting close to a “good” credit history. Refrain from opening a bunch of new accounts because this will cause your average length of credit history to shorten.

If your oldest account is more than 7 years old, you’re in the optimal range. Focus on preserving your history and avoid missing payments or opening too many new accounts.

» RELATED: What is credit?

Credit history length: FICO vs. VantageScore

FICO considers more than 7 years as good, while VantageScore sets “excellent” at more than nine years. The good news is you can establish a VantageScore after only a single month of credit usage. To get a FICO score, though, you’ll need six months of credit usage under your belt.

How do FICO and VantageScore calculate length of history?

First, it’s important to understand the difference between a FICO score and a VantageScore. Both are credit scoring models used to determine your creditworthiness, and both rate your credit score between 300 and 850. But they differ slightly in how they calculate your credit.

For FICO scores, length of credit history comprises 15% of a FICO score. Meanwhile, payment history and credit utilization comprise 35% and 30%, respectively. “So you can see it's not as impactful as those two scoring categories,” said Erica Sandberg, consumer finance expert. “However, it does have an effect.”

On the other hand, the VantageScore 4.0 model places the depth of credit, or age of your accounts, higher at 20%. But it also includes credit mix in this percentage, which FICO factors separately.

Credit history length: Mortgages, cars and credit cards

Purchases such as mortgages, car loans and credit cards will have varying requirements for credit history length.

To be eligible for a mortgage or car loan, most lenders will require you to have at least two years of established credit, according to Sandberg. “Lenders and finance companies typically require an established payment history for larger purchases such as these,” she continued. “That typically means a minimum of one year of borrowing and repaying.”

Even if you’re approved for these loans, you might face a higher interest rate if you have a relatively short length of credit history. So it’s a good idea to put off applying for a mortgage or car loan if you’re just starting out, and focus on building your credit first.

» DISCOVER: What Credit Score Is Needed to Buy a House?

If you’re attempting to open a credit card, what’s considered an acceptable credit history length will depend on the type of card.  “Some are developed exclusively for people with little to no credit history, while more premium cards often require a credit score plus certain credit ownership demands,” Sandberg said.

She cited Capital One as a prime example of a credit company that offers a “large suite of credit cards.” According to Sandberg, cards for excellent credit might require three years or more of positive credit history, while cards for fair credit would require a “far shorter credit history.”

If you’re just getting started, consider becoming an authorized user or co-signer on a card whose primary account holder already has a strong credit history. This can help you build your own credit.

How to calculate credit history length

Lenders and scoring models use several factors to determine what affects a credit score and which components comprise credit history length. Lenders typically review:

• Average age of credit: To arrive at the average age of your overall credit, add the ages of each of your open accounts. Then divide that number by the number of accounts you have.

  For example, let’s say you have six credit products:

  Student loan = 15 years

  Mortgage = 10 years

  Car loan = 5 years

  Credit card = 3 years

  Credit card = 2 years

  Credit card = 1 year

  Your average age would be calculated as: (15 + 10 + 5 + 3 + 2 + 1) / 6 = 6 average years of credit.

• Oldest account: Your oldest account is the age of your first credit account that's still on your credit report.
• Total time with credit: Total time refers to how long you've had any credit at all. So scoring models will consider even closed accounts, like a loan you paid off.

When you're trying to build your credit score, keeping older accounts active (and well managed) will help. Sandberg advised that you keep the accounts in good standing so they can remain on your credit report with a positive impact. Closing your oldest account can eventually lower your average age — keep it open if possible.

Sandberg also suggested that delinquencies on closed accounts will disappear after seven years.  “In the event that you missed payments on those closed accounts, the delinquencies will be purged from your credit report after seven years from the original date of the late payment,” Sandberg said.

How to build and maintain a good length of credit history

The most effective way to build a solid credit history is for time to pass. Establishing good credit habits from the beginning will ensure you’re able to get a loan when you need one, with a reasonable interest rate as well. To build your credit history, you can:

• Open a secured card if denied for unsecured credit.
• Become an authorized user on an account with 5+ years of good history.
• Use credit-builder loans from a local bank or credit union.
• Make small purchases and pay off balances monthly.
• Keep your oldest accounts open and active.
• Limit new credit applications to one every 6 to 12 months.
• Monitor your credit report for errors every four months (rotate bureaus).