We’ve mentioned credit age or credit history in a few places. Let us explain in more detail:

Credit age is the amount of time you’ve had any sort of debt – a credit card, car loan, utilities account, etc. You need credit history because if you don’t have it, the credit bureaus have no way of knowing if you can manage your debts responsibly. On the other hand, the longer you’ve had credit, the more data the bureaus have to evaluate your creditworthiness.

So in short: the longer you’ve shown responsible debt management, the higher your score. Let’s say you have one credit card that you’ve had for 2 years, and a car loan you’ve had for 4 years. You have a total of 6 years of credit history helping you. If you close out that credit card, you now have only 4 years of credit history, which will lower your score.

So how do I build credit history?

This might sound weird, but get some debt. To show the bureaus a history of managing debt responsibly, you need to have debt. We recommend getting a credit card first (yes, you can get a credit card with a low credit score or no credit history at all – learn how here). Car loans and mortgages are great for building credit too, but those often don’t make sense when you’re building or repairing credit, so we also recommend getting utility bills in your name (even if they ask for a deposit).

Another way to get going building credit history is to have someone with a credit card add you as an authorized user. But before you do this, have the primary account holder confirm that the credit card company reports to the credit bureaus for you, the authorized user, as well. We know this can be a tricky favor to ask for, so to make it safe for everyone you can be added to the account, but not actually have a card. Then there’s no risk to your parent or friend of their finances being affected.

How’s the math work?

Let’s say you’ve had a utilities bill in your name, reporting to the credit bureaus for 4 years, and a credit card for 2 years. You have a total of 6 years of credit history. If you close out your credit card, you now have 4 years of credit history. This is important to understand because:

Closing accounts hurts your credit score because it shortens your credit history.

A lot of folks we work with come to us thinking that closing their credit card account improves their credit. In fact, it’s the opposite. As we explained above, closing an account (of any sort) you’ve had for 4 years shortens your total credit history by 4 years, which hurts your score. This is not to say that you should keep all accounts open, and sometimes you can’t help it: you might pay off your car loan (this is fantastic!) and the account will close. But the general rule is to keep accounts open. A lot of our clients who have gotten their score up into the 700s still have the first credit card they opened, just for the history.