21-Jun-2017 written by : FSI-Team
Building a good credit score takes time and patience. You have to pay your credit card bills on time, control expenses, and minimize debt accumulation and a lot more. However, all this is important to ensure that when you need a home loan or a personal loan you are ready and able to get attractive interest rates.
There are many factors that contribute to your credit score such as instances of late payments, credit utilization ratio, etc. However, one of these that’s often overlooked despite its significance is credit history.
If you have ever checked your free credit report then you know it contains various sections such as personal information, pending debt, repayment history etc. The age of credit history essentially refers to this repayment history. In other words, it's the length of your experience with the credit system. This helps you determine your creditworthiness. For a person who has a higher age of credit history is experienced and thus more responsible and trust-worthy.
Different credit bureaus may calculate the age of credit history differently. For instance, some may consider the average age of your open accounts while others may simply use the age of your oldest account. There are some agencies that may also refer to your closed accounts for the calculation of the average age.
It's usually almost impossible to identify the exact system a credit bureau uses for the calculation of credit history age. However, if you want to ensure that your free credit report bears a high score then you might want to keep your oldest accounts active. Many people who close their oldest accounts observe a decline in their credit score and thus face troubles getting a home loan, car loan, etc.
Note: Since some credit agencies consider the average age of all your accounts, opening a new credit card account might lower your age of credit history.
It's natural to feel confident about someone who has been around in something for a long time. This is one of the reasons why highly experienced professionals are paid more than the fresh faces in almost every industry. The same goes for borrowers.
A bank will feel more safe lending money to someone who has taken several loans in the past and repaid them on time than someone who is applying for their very first loan. However, the age of credit history doesn't always warrant loan approval. For instance, if an applicant's credit history goes beyond 10 years but the credit report mentions late payments, high credit utilization ratio, and "settled" accounts, then it would be difficult for them to get a home loan, etc. Thus, while the age of credit history is important, it's not everything.
If you are worried that you won’t be able to get a loan with a short credit history then you mustn't fret. It’s possible to get a loan even when the age of your credit history is less, granted you are willing to put in some effort.
Use the following tips to improve your chances of getting a home loan, personal loan, etc.:
If your income is high enough to cover your EMIs easily then it can be easy to nudge the lender in the right direction by providing the proof of the same. After all, they just want to make sure that the borrower will be able to repay the loan without problems.
Another way to make a lender more confident in you is by offering collateral. Do you have any real estate- land or property? You can use these assets to lower the risk for your lender and get loan approval easily.
If the loan amount you are seeking is high then it can be difficult to get a nod. Thus, you can increase the down payment and thus lower the loan amount to improve the odds.
Always remember- while the age of your credit history is important, it's quality is even more important. So, monitor your credit score and take steps to improve it as much as you can. It will help you greatly in the long run.