YFSCREDIT.COM – Day 12 – How To Improve Your Credit – Length of Credit

Hey Wealth Builder! Welcome back. On day 9 we covered the best way to improve your credit score by paying on time which is 35% of your score.

On day 10, we covered the best way to improve your credit score by improving your utilization which 30% of your score.

Yesterday on Day 11 we covered the best way to improve your credit score by improving your credit mix and went into my “Holy Grail Mix” of credit which is 10%.

Add it up. Day 9, 10, 11 covers 75% of your credit score! That translates into 412.50 points.

You know the beauty of this process? You’re realizing that you have control over what your credit score is! Yup… 75% of your credit score that we covered so far you can directly manipulate it by your actions.

Ok, let’s talk about another 15% of your score or 82.5 points, and that’s length of credit.

Think about this for a second. Here is the scenario:

You’re at dinner with your two favorite people. Person 1 is your 19-year-old cousin, and person number 2 is your best friend who is the same age as you.

Your 19-year-old cousin says:

“Hey! Can I borrow your car? I’ve never been in an accident.”

Your best friend jumps in and says:

“Hold up! I need to borrow your car! “I’ve never been in an accident!”

If both of them have never been in an accident, you trust both of them, and you’re willing to let one of them borrow your car. The question you will probably have is:

“How long have you been driving?”

The 19-year-old just go their license six months ago, but your best friend has been driving for 20+ years accident-free.

Now, who do you trust more with your car?

I’m pretty sure you’re saying your best friend, right?

I said all of that to say this and I know I just talked about you having control over 75% or 412.50 points, but unlike paying on time, utilization and types of credit you don’t have 100% control over the length of credit calculation, but you have some power.

So if you’re now thinking Dom.

“How do I improve the length of credit requirement on my credit score?”

The answer is by giving yourself time after you implement the lessons from day’s 9, 10 and 11 and being consistent with the teachings from day 9, 10 and 11!

I was interviewed about having a perfect credit score and the person doing the write up worked at Equifax at the time. At the end of the write up he said the following:

“None of us avoid credit. In fact, we all have a TON of credit cards. But we use them wisely. None of us have negative marks on our credit reports, and we keep our monthly balances low relative to our total credit limit. Last but not least, we all have credit histories that are at least 15 years old, which makes up 15% of our FICO score alone.”

If I wrote the article I would also added… “If you want to have perfect credit, you need to have had credit for 10+ years”, and FICO agrees with me.

FICO does research on higher achievers, and the latest study showed that people who are in the 800 to 850 range have an average account age of 10 years!

People with higher scores have had credit longer!

So let’s get to how the length of credit is calculated.

Fico’s scoring model calculates the length of credit history by using four factors.
Age of your oldest account
Age of your youngest account
Average age of all your accounts
Time-specific accounts have been active
Here are some tips for ensuring that you maximize your length of credit history.
Pay off credit cards, but don’t close them
Pay down installment loans to $1
After obtaining the “holy grail mix” (see day 11) avoid opening more accounts.
Be patient!

Bonus! A word about closing accounts…

Regarding credit history, closed accounts are treated no differently than open accounts! Meaning, the age on a closed account that let’s say is ten years old gets counted the same as an account that was closed six months ago.

In fact, the length of credit history gets counted for every trade line on your report, regardless of open or closed status.

However, utilization (30% of your score) is the only area of scoring where closing an account can hurt you. Closed accounts with a revolving balance is still counted against utilization; however, a closed account with a no balance would not be.

Keep in mind that closed accounts in good standing are generally removed from your credit report after ten years, whereas an open account in good standing can remain indefinitely!

This is also why I recommend that you pay those installment loans down to $1 and not pay them off. We want that good payment history to remain on the report for as long as possible.

Today’s action items are simple. Calculate the average age of your credit profile!.

Go back to your credit report and next to each account write down how long it’s been open.

Then add up all the years and divide by the number of accounts to calculate your average age

 Post in the group your average credit history age! 

For example, if you have ten accounts and 4 of them are two years old, 5 of them are six years old, and 1 of them is nine years old.

You have 8+30+9 which is equal to 47 years divided by 10 accounts. Making your average age credit age is 4.7 years.

I know I know some of yall are like “this math is killing me!” well P.E.M.D.A.S. it or use the calculator on your smartphone 🙂

Don’t forget to check in with your accountability partner and post your average credit age in the facebook group.