Like a good cheese, your credit can improve over time – if you manage your accounts the right way. We cover how to improve the length of your credit history for the better, and how auto loans can help.
What Makes Up Your Credit Score?
To understand how car loans can help with length of credit history, let's quickly break down the FICO credit scoring model.
The five categories of your FICO credit score are:
- Payment history: 35% – How you have handled/are handling repaying credit.
- Amounts owed: 30% – How much debt you have overall.
- Length of credit history: 15% – How long you’ve had credit overall, including how long specific accounts have been open.
- Credit mix: 10% – Considers the different kinds of credit you’re using.
- New credit: 10% – Keeps track of how often you apply for or take on new credit.
As you can see by taking a look at credit length, the longer you’ve been using credit, the better your credit score could be if you manage your accounts well.
As many borrowers do, you may focus on keeping your credit card balances low, and making all of your payments on time – both good things – but you shouldn’t neglect the other aspects of your credit. They all work together to create that three-digit number that decides so much about your buying power.
Auto Loans and Credit Length
Auto loans are one of the most common forms of installment loans. They’re long-term loans that you pay back in a fixed amount of time (typically) with a fixed predetermined payment.
The longer you have an open account, the more your credit stands to improve. Installment loans can really help with length of credit history, since it usually takes years to pay them off.
Car loans on average are between 60 and 84 months long, and have the potential to help you establish a good payment history and lengthen your overall credit record. Most financial experts say that a credit history of around seven years reflects well on your credit score.
Many auto lenders like to see a long history of on-time payments. If you only have a credit history that goes back six months, it doesn’t show a long history of payments or how well you can handle long-term commitments.
Improving your credit score starts with understanding how it’s generated, and understanding how different kinds of credit can impact your credit score.
Credit Histories Get Better With Age
Third on the list of factors that make up your FICO credit score, accounting for 15% of it, is the length of your credit history. It’s not just simply how long you’ve had credit accounts, but a few other things as well.
Your credit length category:
- Keeps track of your oldest account, newest account, and the average age of the rest of your accounts.
- How long certain accounts have been open.
- How long certain accounts have been active/the last time it was used.
Credit bureaus use the length of credit history in your credit reports to determine your overall credit age. This is the average age of all your accounts.
To improve your credit score, keep older accounts open even if you rarely use them. Closing an old credit line can offset the average age of your accounts, and closing your oldest one could lower your credit score. Additionally, closing an old credit card account can lower your credit utilization ratio, which can negatively impact your credit score.
While revolving credit, like credit cards, can improve many aspects of your credit age, car loans can really help in terms of your credit length since they last for years.
Start Your Credit History With a Car Loan
You don’t need 50 years of credit history to have a good credit score. A healthy mix of installment loans and revolving credit with timely payments can improve your credit. The catch with improving your credit score is that it’s hard to get started with credit when you have a lower credit score if you’re new in the game. Many borrowers start their credit history off with an auto loan to establish themselves.
However, being a brand-new borrower tends to create a lower credit score, which can make it hard to get approved for new credit. This is where we want to help!
Here at Auto Credit Express, we have a network of dealerships that work with no credit and bad credit borrowers, and we’ve got connections all over the country. There are dealers that are signed up with bad credit car lenders who have the skills to assist borrowers in many different credit situations.
To get matched to a dealer with the lending resources you need in your own area, fill out our free auto loan request form. There’s never an obligation to buy anything, so get started now!