Out of all the factors that influence your credit scores, there’s at least one that you don’t have to put much effort into: credit history. But even though this may be the easiest credit score factor to maintain, you might be wondering how important it is. Read on to find out.
How Credit History Affects Your Credit Scores
Credit scores were made to predict credit applicants’ credit behavior. Unsurprisingly, more information can lead to a more accurate prediction. That’s where credit history comes in.
Credit history is a simple concept: It’s the length of time you’ve had your credit accounts. The longer the history, the better. It gives lenders the ability to see how you’ve managed certain types of credit accounts over the years, and (provided that you paid your bills on time) it shows lenders that you have a history of being able to manage credit accounts properly.
To that end, take a look at how the two major credit scoring companies rank this credit scoring factor. First up, FICO®:
|FICO® Credit Score Factor||Percentage|
|Length of credit history||15%|
As you can see, FICO® puts credit history smack in the middle of the five factors of its credit scores. It’s not at the top, but it’s not at the bottom, either. Here’s how VantageScore® ranks it:
|VantageScore® Credit Score Factor||Level of Influence|
|Payment history||Extremely Influential|
|Type of credit and duration of credit||Highly Influential|
|Credit utilization ratio||Highly Influential|
|Total debt||Moderately Influential|
|New credit inquiries||Less Influential|
|How much available credit you have||Less Influential|
VantageScore® groups credit history in with type of credit, calling credit history “duration of credit” and making the two “highly influential” factors. Together, they’re ranked as the second most influential factors in the VantageScore® credit scores.
All told, credit history has a moderate to large impact on your credit scores. This is great news if you’ve had at least one credit account open for some time. But what about people who are building credit for the first time? It can be good news for them as well …
How to Build a Good Credit History
If you want to build a good credit history, you can start by opening a credit account of your choosing and managing it wisely. Here are a few best practices for building a positive credit history and maintaining a healthy credit profile:
- Carefully selecting the types of credit you have a use for and have the means to pay off.
- Paying your monthly bills in full and on time every single month. That includes non-credit bills as well, such as your utilities and cell phone bills. (A long credit history doesn’t help your credit if it includes a lot of late payments.)
- Keeping credit card balances low — at 30 percent or below your available credit limits
- Avoiding applying for too much credit too frequently. And, if you’re shopping for a loan and want to see who’ll give you the best rate, getting all applications in within 14 days to show that you’re rate shopping and don’t intend to open all the accounts for which you’re applying.
- Refraining from closing credit cards once they’re paid off — keeping them open and paying them off before interest accrues can help your credit history and your credit utilization without hurting your finances.
- Regularly reviewing your credit reports and disputing any errors you find.
FREE TOOL: Are mistakes on your credit report hurting your credit scores? Find out here.
If it sounds pretty straightforward, that’s because it is. Good credit practices very often mimic good financial practices. By using credit when you need it and showing positive behavior like on-time payments, you can steadily work your way toward excellent credit.