Does the Length of My Credit History Matter? – Your credit score is one of the most important metrics underwriters look at to determine your eligibility for a mortgage. This 3-digit number says a lot about how you manage debt and whether you are able to take on more in the form of a home loan.
One of the ways credit bureaus calculate your credit score is by looking at the length of your credit history. Even if you have a “perfect” record if you have only had credit for a short period of time your score may not be what you hoped it would be.
We are always here to answer your questions about getting approved for a home loan, so contact us any time. Check out these answers to frequently asked questions about the length of your credit history to feel more informed about the approval process.
How is the length of my credit history measured?
Credit bureaus measure your credit history by looking at more than just how long it has been since you took on debt for the first time. There are three elements that are taken into account to measure the length of your credit history:
- How long each of your credit accounts has been open
- How long different types of accounts (installment and revolving) have been open
- How long it has been since you have used each account
These three factors combine to paint a picture of your reputation with credit. Some credit bureaus also look at the average age of accounts (also called your AAoA), which is calculated by finding the average length of time you’ve had an account among all of your types of credit.
Why is a longer credit history better?
If you put yourself in the position of a lender, it is easy to understand why they prefer a longer credit history over a shorter one. Someone who has been managing their credit well for 10 years is going to be a less risky borrower than someone who has only has credit accounts for 1 year.
Simply put, the longer your credit history the more information your lender has to observe, and the less risky their decision to lend money to you is.
How long does my credit history need to be to get approved for a mortgage?
While there is no magic number, most credit experts advise that you begin building your credit as early as possible. If buying a home is a few years out for you, begin preparing now by familiarizing yourself with how credit scores are calculated and building that credit history now.
There is no set number of years that you must have been building credit in order to qualify for a mortgage. Remember that the length of your credit history is just one facet of the score itself. If you’re not sure whether your current score is strong enough to qualify for the mortgage you want, feel free to reach out to us to get an expert opinion.
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