Even though it may not be the most important factor in developing a good credit history, your credit age can help you establish excellent credit. Before approving credit, lenders consider a variety of factors one of which is your credit age.
This is because your credit age demonstrates your ability to manage accounts successfully over time. Lenders use your credit age to determine the likelihood that you will repay the debt.
In this post, we’ll dissect what credit age means, how it impacts your credit history, and how you can calculate your credit age.
What is Credit Age?
Credit age is the average time your credit accounts have been open. A “good” credit age refers to having a lengthy credit history that includes accounts that have been open for an extended period of time.
There is no widely accepted measure for determining a “good” credit age, as this depends on the circumstances of the individual and the credit scoring model. However, in general, creditors favor credit histories that are at least several years old.
How Do I Calculate My Credit Age?
To figure out how old your credit is, you’ll need to add up how long each of your credit accounts has been open and then find the average age of all of them.
Here’s a step-by-step guide:
1. Get account records
Get the records for all your credit accounts, such as credit cards, loans, and mortgages. Verify when you opened each account.
2. Calculate ages
Thereafter you calculate their ‘ages’ by subtracting the year they were created from the present year.
3. Find average
If you have more than one credit account, find out the average by adding up all the ages of each account and dividing by the number of credit accounts you have.
Here’s an example:
Let’s say you have three credit accounts:
Account A: Opened on January 1, 2010 (13 years old)
Account B: Opened on June 15, 2015 (8 years old)
Account C: Opened on November 30, 2020 (2 years old)
Sum of account ages: 13 + 8 + 2 = 23 years
Total number of accounts: 3
The average age of accounts: 23 / 3 = 7.67 years
So, in this example, the average age of your credit accounts is approximately 7.67 years.
How to Build Your Credit Age
It takes time along with diligent credit management to build up your credit age. Here are some things you can do to build your credit history:
Open a credit account
You need at least one credit account to start building your credit age. This could be a credit card, a protected credit card (if you haven’t used credit before), or a loan that you pay back over time. If you are just starting out, secured credit cards are a good way to build credit.
Make payments on time
Pay all of your bills on time, including your credit card and loan bills. If you pay your bills late, it can hurt your credit records and credit score. Make sure you never miss a due date by setting up reminders or regular payments.
Maintain low credit utilization
Keep the amounts on your credit cards low compared to your credit limits. If you use a lot of credit, it can hurt your credit score. Try to use no more than 30% of the credit you have.
Don’t open too many new accounts
Even though it’s good to have a variety of credit accounts, starting too many new ones in a short amount of time can make your average credit age go down. Only open new accounts when you need to, and don’t apply for credit on the spot.
Diversify your credit mix
Your credit rating can look better if you diversify your credit mix. Having different kinds of credit accounts, like credit cards, installment loans, and retail accounts can help with your credit age. The important thing is to open an account only when you need it. If you don’t need an account, just having one is fine.
Keep old accounts open
The age of your accounts is what makes up your credit history. By closing old accounts, you can lower the average age of your credit. Even if you don’t use an old credit card, you might want to keep it open to keep your credit history.
Borrow responsibly
A good credit past is made up of borrowing and paying back money in a responsible way. If you have loans, like student loans or a car loan, make sure you pay them on time and consistently.
Monitor Your Credit Report
Check your credit record often to see if there are any mistakes or wrong information. Each of the three big credit reporting agencies (Equifax, Experian, and TransUnion) must give you a free copy of your credit report once a year. Object to any differences you find.
Be Patient
It takes time to build up your credit age. A good credit background takes time to build up. Don’t expect results right away. Instead, focus on having good credit habits regularly.
Seek professional advice
If you don’t know how to build your credit score or are having trouble, you might want to talk to a certified credit counsellor or financial expert. They can give you advice that is tailored to your unique situation.
Credit Age and Your Credit Profile
It’s important to remember that your credit age is a big part of your credit score, but it’s not the only thing that goes into it. Your payment history, how you use your credit, the types of credit you have, and how recently you’ve checked your credit are all important factors in figuring out how creditworthy you are.
Final Thoughts
Maintaining a lengthier and positive credit history can ultimately result in a higher credit score. Focus on responsible credit management, on-time payments, and a low credit utilization rate if you are new to credit.
Your credit age will naturally increase over time, and as long as you maintain excellent credit habits, it should positively impact your credit score.
Also, bear in mind that closed accounts may affect your credit age for a period of time after they have been closed, depending on the credit scoring model used.
In addition, the above calculation implies the use of the simple average method. Some credit scoring models may employ distinct methodologies or evaluate particular accounts differently.
Remember that credit age is only one of the factors that affect your credit score. Other key factors include payment history, credit utilization, and types of credit. It is generally advised to avoid closing your earliest credit accounts, as doing so can have a negative impact on your average credit age and your credit score.