How Much Credit History Do I Really Need?

What do spirits, cheese, and credit histories all have in common?

The old adage that age brings wisdom has long held sway in finance. It's even a recognized part of your creditworthiness, contributing to one of the main factors in your credit scores -- but not in the way you might think.

You see, your actual age isn't something that credit scoring models take into account. Instead, scores incorporate the age of your credit history. In fact, many FICO scoring algorithms count your credit history age for 15% of your overall score.

But what makes for a well-aged credit history? Like most spirits, older is better -- as long as conditions stay good. A short, good credit history is often better than a long, troubled one. Of course, there is such a thing as too short of a credit history, no matter how pristine.

You need six months of history to get a FICO® Score

To start building a credit history, you need at least one credit account that reports your payment history and balance to at least one of the three major credit bureaus: Equifax, Experian, and TransUnion. But you don't get a credit score right away.

The credit history requirement for a credit score varies by agency. As a base, you need at least six months of credit history to qualify for a FICO® Score. VantageScore is a little easier, as you only need one month of history to qualify for a VantageScore.

Age well for best results

While six months is the minimum age before you're fully scorable, that's the bottom of the range -- way at the bottom. Most lenders (and scoring models) consider anything less than two years of credit history to be little more than a decent start.

When you get into the two- to four-year range, you're just taking the training wheels off. Having at least five years of good credit history puts you in the middle of the pack. It's not until you have seven to 10 years of solid credit history that you'll score top marks for this credit factor.

Of course, it's not just the age of your overall credit history that matters. This aspect of your credit score actually analyzes your credit history age in two different ways, and each weighs into the final product.

The age-scoring factor of your credit history has two parts

Having at least one old credit account in good standing shows lenders that you've had a lot of practice responsibly maintaining credit. But that's not all there is to see. For example, having one old account and a dozen new ones could tell an entirely different story. So, creditors will look at both your overall history and your average account age to get the whole picture.

1. Your overall credit history

This aspect of your score is pretty straightforward, as it simply looks at your single oldest account. This is a great reason to hang on to your first credit card. And it's even better if it's a no-annual-fee card you can leave open without any costs.

However, if you do wind up closing an old account, it won't necessarily hurt your credit history age right away. Accounts closed in good standing can stay on your credit reports for up to 10 years.

2. Your average account age

This part of your score looks at the average age of your accounts, across all of your accounts. To determine the average age, you simply add up the age of each account, then divide by the total number of accounts.

As an example, say you have three credit cards, each with the following ages: Card A: 24 months, Card B: 12 months, Card C: 3 months. Added up, you get a total of 39 months. Divide that total (39) by the number of cards (3), and you wind up with an average age of: 39 / 3 = 13 months.

Each new credit card you open will get added into the mix, which will reduce your average account age. Too many new accounts can cause your average to drop significantly. Like your overall age, an older average account age is better, so it's a good idea to spread out your new applications to give your existing accounts more time to age between additions.

There's a lot that goes into your credit scores

Although the age of your accounts is an important part of your credit scores, it's also important to remember that it's just one of many factors that contribute to your scores. Time will age up your credit history without much involvement from you, so focus on the parts of your score you can actively improve. Pay your bills on time, keep your balances low, and space out your applications to keep your overall credit in great shape.