Duration Benefits the Long-Term Account Holder |
By Kenneth Long on May 25, 2010
.jpg.aspx?width=75&height=75) Having no or slow credit can be difficult to climb out of. This is especially true since 15% of the FICO credit scoring formula is based on the length of your credit history. This means that recent graduates or anyone under the age of 25 will find it especially difficult to achieve higher credit scores. Fair Isaac reports that most FICO High Achievers" opened their first revolving account 19 years ago on average.
The concept is simple. The longer you have proven that you can manage credit accounts, the more likely that you can continue to handle credit in the future.
Credit bureaus reward long enduring relationships with your creditors by boosting your scores. Anyone can keep an account in good standing for a couple of months, but it takes dedication to maintain a positive account for a couple of decades.
Payment history and effects of debt balance ratios might be weighted more heavily, but duration still is a major credit scoring component. Potential lenders really look at how long you have been a good customer of their competitors.
Duration is measured both individually and collectively. That means that while a 15 year account will help you, a 1 year account will likely not boost your score and a collective 8 years average credit history length is a comparatively strong indicator of creditworthiness. According to Fair Isaac Corporation, "most FICO High Achievers have an average age of accounts between 6 and 12 years."
Sometimes consumers feel the need to close unneeded lines of credit. This may be to avoid annual fees or to prevent the risk of fraudulent use of an account. Given that duration is such a strong indicator of good credit, it makes sense to consider how long you have kept an account open when deciding which accounts to keep.
Closing a 14 month account will likely not reduce your score. Closing a 14 year account may not immediately reduce your credit score, but it will cease to build to a longer tenure account. That will ultimately keep you from reaching even higher credit scores in the future. Therefore, when closing accounts, look for the least useful and most recently opened accounts as a starting point.
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