Length of Credit History
Previously in parts one and two of this series, How Credit Scores Are Built, we covered how the first 65% of your credit scores are calculated. The bulk of your credit scores are based upon your payment history and the amounts you owe on outstanding debts, especially your credit card debt. However, there is another important 35% of your credit scores which has nothing to do with these factors at all: length of credit history.
FICO breaks your credit reports down into 5 separate categories when tallying up your credit scores. As mentioned the “Amounts Owed” category and the “Payment History” category collectively account for a massive 65% of your credits scores. Yet even though the remaining 3 categories are each worth significantly fewer points there is still a great value in understanding how to maximize your credit scores within these categories as well.
Length of Credit History
The third most important credit report category which is considered by FICO’s credit scoring models is known as “Length of Credit History.” Typically the older the accounts on your credit reports the better the impact will be upon your credit scores. Having an older credit history demonstrates that you are a seasoned borrower and at least less of an unknown risk to future lenders.
FICO considers a number of factors when analyzing your credit history length. Here is a list to help you understand a few of the most important credit report details which are weighed within this category.
- The Age of Your Oldest Account
- The Age of Your Newest Account
- The Average Age of All Accounts on Your Credit Report
- How Long Since You Used Your Accounts
The Authorized User Strategy
In general you may simply have to be patient and allow time to take its course in order to strengthen the “Length of Credit History” portion of your credit reports. After all, you cannot simply turn a 6 month old mortgage into a 20 year old mortgage account with the waive of a magic wand. However, there is at least one potential way which might help you to increase your credit history length a bit more quickly – the authorized user strategy.
Here is how the authorized user strategy works. You begin by asking a friend or family member to add you to one or more of their existing credit card accounts. You do not need to be added as a joint cardholder, simply an authorized user. Once you have been added to the account most major credit card issuers (though not all of them) will add the account to your credit reports where it will appear with its full payment history within a few months or less.
Pitfalls to Avoid
If you are added to a credit card account as an authorized user you should be aware that the account has the ability to help or harm your credit scores. For example, if you are added to a credit card account with a high utilization ratio or an account with late payments then the impact upon your credit scores would most likely be negative even if the account has a lengthy credit history (i.e. it was opened a long time ago). You can always be removed as an authorized user from a credit card account at any time and you are not even legally liable for the debt on the account. However, you probably only want to have a loved one add you to a healthy credit card account with a low balance and no late payments in the first place.
Additionally, there are some shady companies online who offer to sell authorized user accounts for a fee. These companies will broker an arrangement between you and a stranger where you pay to be added to the credit card account of someone you do not know. However, paying to piggyback on a stranger’s credit card in an effort to game the credit scoring system is a big mistake. Don’t game your credit history length!
When you partake in this practice, also known as tradeline renting, and secure a loan after doing so then you could arguably be guilty of committing bank fraud. If you do not have a friend or family member who is willing to add you to a credit card account then your best bet is just to strengthen your credit in every other area possible and patiently allow time to take its course with your credit history length. A professional credit expert may be able to help you come up with a strategy to work on improving your credit more quickly.