When it comes to building strong credit scores, experience helps. Credit scores are designed to evaluate information from your credit history to predict how likely you are to pay on time in the future. To do that, they require information about how you’ve handled your accounts in the past.
If you don’t have much in the way of credit references on your credit reports, you’ll have what’s called a “thin file” and it will be harder to earn a high score. Similarly if you’ve only had credit for a short period of time, getting a high credit score is challenging. Young people and immigrants, for example, often find the process of getting their first credit card or loan frustrating. (This guide explains how to build credit as an immigrant.)
The “age of credit” or “length of credit history” factor considers when you opened your first account, the average age of all your accounts and when you opened your most recent one. Any type of account that appears on your credit reports helps here, whether it’s a mortgage, credit card or car loan. Although it’s not one of the top factors in most scoring models it does make up roughly 15% of your credit history, at least when it comes to FICO scores.
FICO says that consumers with the highest credit scores opened their first account, on average, 25 years ago, and the average age of all their accounts is eleven years. That’s why it is smart to start building a credit history before you need to borrow. “Age of credit history” is a hard factor to fudge.
Clearly, opening up an account and establishing a credit history sooner rather than later can help. At the same time, being careful and cautious about opening new accounts can be helpful as well, since these younger accounts can affect the average age of all your accounts. That doesn’t mean you should never apply for new accounts, but it does mean you want to think twice when a store clerk tries to talk you into accepting a new account for an extra 10% off a purchase. Make sure it’s an account you actually want and that you will use it more than once!
Also worth noting: closing an account does not remove it from your credit reports, at least not right away. Most closed accounts are reported for about ten years after they are closed, and they still contribute to the length of your credit history.
Business Credit Scores And Account Age
The first thing to understand with business credit scores is that time in business will be a factor in most scoring models. Statistics show that a large majority of businesses do not survive for five years, and therefore older businesses get some “credit” so to speak, for longevity.
The second thing to understand is that not all companies report to all the major business credit reporting agencies. With personal credit, if you get a credit card, student loan or personal loan, chances are it will appear on all your report with all three major credit reporting agencies (Equifax, Experian and TransUnion.) But when it comes to business credit bureaus, the level of reporting is much more scattered.
Need help finding companies that report? Use the BusinessLauncher tool available in your free Nav account.
In addition, business credit scoring models are generally looking at the breadth and depth of the firm’s experience with credit though they may not look at it exactly the same way personal scores do. A long and well-established record of experience with credit can help contribute to higher scores. How much it helps, depends on the particular scoring model that is being used, but it’s safe to say that a long credit history showing on time payments on various accounts helps, and won’t hurt, your credit scores. Again. that’s a good reason to start building strong credit before you need to borrow. You’ll want to take advantage of time.
Finally, some credit scoring models—Experian Intelliscore Plus, and in some cases FICO LIquidCredit SBSS—look at information about the owner’s personal credit as well as their business credit references. That means a strong personal credit score (with a long payment history) can be helpful when building strong business credit scores as well.
Tip: Find out how you score for “age of accounts” with a free Nav account. Get started today.
This article was originally written on December 8, 2015 and updated on July 7, 2017.
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