Is your credit history, um, history?

Video Transcript

The credit score, more specifically the FICO score, is made up of five factors.
 
Let’s break down factor number three, length of credit history. This factor makes up roughly 15% of your overall score, which is not nearly as impactful as the first two factors, but the key with this factor is, the older your credit history, the better.
Lenders see this as a sign of a trust worthy barrower. It's kind of like, if you were going on vacation and you got on your plane, you took your seat, you got all buckled in, and then the pilot got on the microphone and said "hey everyone just wanted to let you know this is my second week on the job." I don't think you would be feeling too great about this decision to buy this plane ticket.
So just like how you would view your pilot in that situation, lenders see longer positive experiences as a plus. The longer you've been able to responsibility handle debt, the more faith lenders have that you'll be able to continue to do so into the future. And so the score, the factor of this score, looks at the age of your oldest account and the average age of all your accounts. This is why it could be hurtful if you were to, for example, close one of your oldest credit cards that you don't use very often.
 
The other factor is the average age of your credit. If you were to open up a lot of new lines of credit, the average age of your overall credit would begin to drop. So for example, if you had just one credit card that you opened 15 years ago both your average age and the oldest age of your credit would be 15 years. If you opened a new card today, your oldest account would still be 15 years old, but the average age of all your lines of credit would drop to roughly seven and a half years.
 
And this is why it is important to just be mindful when you apply to new lines of credit because it can have a large impact on this specific factor of your credit score.