Credit Scores | Credit History

TLDR; The longer you have been using credit, the better! If you haven’t opened your first account yet, now might be a great time to do it.

Credit history is another impactful factor in determining our credit scores, though it doesn’t rank as high as payment history.

There are a few ways this factor is commonly calculated:

• Simply taking the oldest age out of all of your open accounts
• Taking the average age out of all of your open accounts

Let’s think through the motivations behind this stat.

We know the financial system enjoys using the past to predict the future and that’s reliant on data. The more time we’ve spent building credit, the stronger we signal that we know how to use credit.

Put another way, we trust someone who has had credit for the last decade more than someone who has never had credit at all.

There are some serious systemic implications behind this. Primarily around communities that are underbanked and are locked out of the developed financial systems by default because they never had the opportunity to build credit, but that’s a story for another time.

According to Chase, credit history makes up about 21% of our overall credit score.

Meanwhile, Credit Karma has credit history impact marked as “medium”.

You can see here that my credit history is given a “Needs Work” rating, but doesn’t actually have a large of enough impact to prevent me from having a credit score in the low-800s.

Both Credit Karma and Chase have slightly different definitions of what constitutes the thresholds for the 4 buckets they break this metric into:

In both cases, my credit history is relatively thin as I simply haven’t had enough time to age my oldest account and my average account age is dragged down by new credit cards I regularly open.

I’ll be almost 50 by the time current credit scoring models give my credit age the best rating, but again this one factor will not prevent you from having a strong score (750+).

Here’s a hack if you want to call it that.

If your parents have credit cards, have decent credit, and are willing, have them add you to their account as an authorized user.

When you are added as an authorized user to someone’s credit card, you instantly inherit that account’s age. An authorized user is simply someone who can use the primary credit holder’s credit card.

What that means is if their account is 17 years old and you never had credit before (0 years old), your credit history takes their age and gets boosted to 17 years old!

This also has the effect of raising your average account age, all good things for your credit score particularly if you’re trying to improve it or never had credit yet.

Technically this could be anyone like a sibling or a trusted friend, but generally the people who meet the criteria of having long credit histories and are willing to do this are parents.

From a theoretical standpoint, this makes some sense. If there is someone who has had credit for a long time, it stands to reason they can show you good habits or the ropes of having credit.

The earlier we begin building credit, the better.

It’s never too late, but it does make things far easier down the line to open an account when we’re younger.

As mentioned, don’t sweat not having the best rating in this category since the only way to improve this component outside of having someone add you as an authorized user is simply time.

Most importantly, a short credit history won’t prevent you from having a good score.

This post was ported over from my Substack series