Have you ever looked up your credit score? It can impact your ability to borrow money, secure a job, and even rent an apartment. Many factors can cause your credit score to fluctuate, but one of the lesser-known factors is the length of your credit history.
So, what is a good credit age to ensure a healthy credit profile?
Length Of Your Credit History: Meaning
Credit history is an important factor used to calculate credit scores. When lenders and creditors consider your credit history, they are usually looking at both credit history length and credit age.
- Credit history length refers to the amount of time that a credit account has been open. For example, a credit card that you opened two years ago would have a credit history of two years.
- Credit age, on the other hand, refers to the average age of all your credit accounts. For instance, let’s say you have four different credit accounts, with the ages of one year, two years, five years, and eight years. In this scenario, the average of all four accounts would be 16 years (when you add all four numbers, then divide by four to get the average).
| What Are Credit Scores? A credit score is a tool used to determine a person’s likelihood of paying a bill or debt. A credit score can range anywhere from 300 to 900 and is calculated based on the information in your credit report. Credit scores below 560 are considered poor while those 660 and above are considered good to excellent. |
Importance Of Your Credit History
As mentioned, your credit history is an important factor that lenders commonly use to calculate your credit score and determine your creditworthiness. Lenders will look at your credit history to see if you’ve been able to manage your credit accounts over a long period. They may also look at your credit history to judge your probability of making future bill payments on time.
Generally, accounts in good standing that have been open longer will have a more positive impact on your credit scores.
What Can Impact Your Length Of Credit History?
Two main actions can affect the length of your credit history to lenders: opening and closing accounts.
- Opening New Accounts – Equifax suggests limiting the number of accounts you open as multiple new credit accounts lower your average account age. It’s best to only open accounts you need.
- Closing Old Accounts – According to Equifax, you should keep your oldest account open, if you can. Moreover, if creditors can see you have a long track record of using credit wisely, they’ll be more likely to approve you.
Should You Close Your Credit Card Account?
When you pay off a debt, such as a credit card, you might be tempted to close that account to clean up the clutter in your credit file. But you might want to think twice before doing this if it’s one of your oldest accounts, especially if you’ve used it responsibly. Closing older accounts will lower the average age and might reduce your credit score.
What’s A Good Length For Credit History?
It’s always best to have a mix of accounts with a variety of ages in your credit file, but it’s important to have an account or two that is significantly older. If you have accounts with an average age of five years, you’re likely in good shape.
But of course, longer is typically better. If the average age of your accounts is 10 years, for instance, you can consider yourself to have a long credit history.
How To Improve The Age Of Your Credit History
If you have no credit history, taking out a small personal loan or applying for a credit card can help you get started. And if you have poor credit, you can give your score a boost by using credit wisely and responsibly.
If you’re having difficulty getting approved for a traditional loan or credit card, there are some options to help you get started:
- Keep Your Old Accounts Open – Keeping older credit accounts open can help increase your credit account age. The longer you keep it open, the better. Similarly, avoid opening any new accounts unless you need them.
- Apply For A Secured Credit Card – Secured cards offer you credit, up to a certain limit, when you provide a deposit to be used as collateral. Secured credit cards can help you improve the average age of your credit accounts when you use them and pay them according to the terms of your agreement.
- Open A Low-Cost Cellular Phone Account – Certain cell phone providers report accounts to Equifax and TransUnion. If you stay with the same company for a long time, it can help increase the average age of your credit accounts. Plus, making timely payments every month can help you build a healthy credit score.
- Use A Credit Builder Product — Credit builder products are available to help you build good credit and a positive payment history. KOHO’s credit builder program, for example, gives you a line of credit in your name that you can use for credit building purposes. You’ll be guaranteed approval, then pay a small monthly subscription fee, which will be reported to one of the credit bureaus.
How Long Does It Take To Build A Positive Credit History?
It takes time to build a credit score from the ground up to a healthy level.
Building Credit From Scratch
You can build a credit history in roughly six months, however, it can take more or less time dpeending on your credit activity. You’ll need at least one credit account that’s been open for at least three months, and an account that’s been reported to one of the credit bureaus within the last six months.
Improving Your Credit Score
If you have bad credit, the amount of time it will take you to repair your score depends on a few factors, including what your score currently is and how high you want your score to be. That said, it can take one to two years of good financial habits to see a decent improvement in your credit score. However, it can take a few years to reach an excellent credit score.
How Length Of Credit History Can Affect Your Ability To Qualify For Credit Products
The age of your credit accounts may be more important to some lenders than others. Here’s how the length of your history applies to different products:
Mortgages
It can be tough to purchase a home with little or no credit history, especially if you’re applying for a mortgage with one of the Big 5 banks in Canada. Banks tend to have more stringent requirements than mortgage brokers and online lenders. However, if you have at least a year of credit history, it may be possible to get approved with these lenders.
Personal Loans
Some lenders may require a long credit history, while others may not even check your credit. In the latter case, you won’t have to worry about how old your accounts are. But if you choose to apply with an A lender, you may need a longer credit history.
Line Of Credit
Depending on the lender you apply with, getting a line of credit with little credit history may be difficult, especially if you’re looking for a higher credit limit or a lower interest rate. If you have an average credit history of around five years, you may have a better chance of negotiating the line of credit you want.
That said, some online lenders offer lines of credit to those with limited credit history. However, higher interest rates typically apply.
Credit Cards
A credit card is a great place to start when trying to build a credit history. You may be able to get approved for one without a credit history. However, a limited credit history might make it more difficult to secure a premium credit card or a high credit limit.
Car Loans
Car loans don’t usually require a long credit history since they’re secured by a valuable asset. Your approval generally depends on your income level and overall credit health, but 12 months of credit history should be adequate. With timely payments, you can use a car loan to build good credit.
Where Can You Check Your Credit Score In Canada?
There are many credit score providers in Canada. While some are free, others charge a small monthly fee to access.
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
Common Factors That Can Affect Your Credit Score
Different credit scoring models may be used to calculate your credit score. That said, they all typically use common factors, such as the following:
- Payment History (~35%) – The most important factor used to calculate your credit score is payment history. Whether you’ve made on-time payments or have a history of missing payment due dates will reflect heavily on your credit score.
- Debt-To-Credit Ratio (~30%) – The higher your debt level, the greater risk you represent to lenders. Keeping your debt under 30% of your total credit limit may help keep your score healthy.
- Credit History Length (~15%) — As mentioned, your credit history length refers to the amount of time your credit accounts have been open.
- Number Of Inquiries (~10%) – The number of times you apply for new credit may affect your credit score. Several hard inquiries from lenders and creditors within a short period can impact your score negatively. However, soft inquiries such as checking your own credit will not impact your credit score.
- Public Records (~10%) – Public records, such as previous bankruptcies, consumer proposals, liens, lawsuits, and accounts in collections can impact the calculation of your credit score.
Bottom Line
It takes time to establish a lengthy credit history. But there are still some credit products that you may be able to secure despite a limited credit history. Be sure to use these products responsibly to help you build good credit.
