How the length of your credit history affects your credit rating
Why is the length of your credit history important ?
Regarding the length of your credit history , lenders will remember and analyze the account that has been open the longest as well as the average age of all your open accounts. Lenders will also look at your credit history to predict your future behavior and decide whether or not to approve your application for a credit product.
Accounts in good standing, which have been open longer, will generally have a more positive impact on a credit report and score. The length of an account’s existence is not everything, however. If lenders see long-existing accounts that are riddled with late or missed payments , your credit rating may be negatively affected.
Stick to what you really need. If creditors can see that you have a long track record of using credit wisely, they’ll be more likely to approve you.
How old should the credit history be ?
It’s always best to have accounts with a variety of ages on your credit report, but it’s important to have an account or two that are significantly older. If you have accounts with an average age of 5 years, you are probably in a good position. So if the average age of your accounts is ten years, you can definitely consider yourself to have a long credit history.
SHOULD YOU CLOSE YOUR CREDIT CARD ACCOUNT ?
When you pay off a debt , like a credit card, you might be tempted to close that account to lighten and update your credit report. You might want to think twice if this is one of your older accounts, especially if you’ve used it responsibly. Closing older accounts will lower the average age and could lower your credit rating.
How the length of your credit history can affect your ability to qualify for different credit products
The age of your credit accounts may be more important to some lenders than to others. Here’s how your history length applies to different products:
Mortgages
If you’re hoping to buy a home with little or no credit history, it can be difficult, especially if you’re approaching the Big 5 banks in Canada with your mortgage application. Banks tend to have stricter requirements than mortgage brokers and online lenders . That said, if you have at least a year’s worth of credit history, it might be doable.
Personal loans
Again, it will all depend on the lender. While some require a long credit history, others may not even check your credit. In this case, you will not have to worry about the age of your accounts.
Line of credit
Being a line of credit holder , you might have a little more difficulty getting approved, especially if you’re looking for a higher credit limit or lower interest rate. If you have an average credit history (between 3 and 5 years), you will have a better chance of negotiating the line of credit you want.
Credit card
A credit card is a great starting point when trying to build a credit history. Most consumers can get approved for one with no credit history.
car loan
Like credit cards, car loans generally do not require a long credit history because they are secured. Your approval will generally depend on your income level and overall credit status, but 12 months of credit history should be sufficient. Because auto loans are an easy option, they’re generally a good option if you’re trying to rebuild credit.
How to improve the age of your credit history
If you don’t have a credit history, taking out a small personal loan or applying for a credit card can help you start building a credit history. If you have bad credit, start improving it by using credit wisely and responsibly. If you’re having trouble getting approved for a traditional loan, there are options to help you get started.
OPEN A LOW COST CELL PHONE ACCOUNT
Some cell phone accounts appear in Equifax and TransUnion reports. You don’t have to choose the biggest and best phone. An inexpensive phone with a monthly plan you can afford is all you need. Staying with the same company for a long time can help increase the average age of your accounts.
APPLY FOR A SECURED CREDIT CARD
Secured cards offer you credit, up to a certain limit, i.e. when you provide a deposit to use as collateral. Secured credit cards can help improve the average age of your credit accounts when you use them and pay them according to the terms of your agreement.
