A credit score is calculated with a complex mathematical algorithm that uses many parameters and assigns weights to each one of them to arrive at a particular number. It is a 3 digit number ranging between 300-900. Your lenders use it to determine the amount of risk they are bearing by lending to you.

A credit score is generated by the Credit Information Service companies or Credit bureaus as it is commonly called as and is a representation of your past creditworthiness based on which are future credit decisions regarding your credit applications are made. Needless to say, a good credit score which is indicated by higher numbers on the credit score range is needed to get any kind of credit and on favorable terms. On the other hand, individuals with low credit score sees more of rejections on the credit front.

Before proceeding to see how credit history impacts your credit score, let us also look at all the other factors that affect a credit score.

 Factors affecting Credit Score 

 Impact on Credit Score 

 Payment History 

 High Impact 

 Credit Accounts 

 High Impact 

 Credit Mix 

 Medium Impact 

 Credit Utilisation Ratio 

 High Impact 

 Number of Hard Enquires 

 Low Impact 

 Length of Credit History 

 Low Impact 

What does Credit History Indicate About your Credit Health?

You must know that each credit action of yours right from applying to credit to its approval or rejection to your repayments and till the closure of the account, everything contributes to your credit score in one or the other way.  For credit bureaus to arrive at a credit score, they need reasonable amount of data to generate your credit score.

Consider this: An individual who has just joined the workforce has a credit card and has used it for barely 1-2 months. Even though he might have made prompt repayment against his outstanding credit bill, the available data might not be sufficient for the credit bureaus to assign him a high credit score. It requires about 6 months after availing your first loan or credit card for the credit bureaus to generate your credit score.

On the other hand, take the case of another individual who has been using a credit card for 5 years and has been more or less regular with the payments. Here, in this case, longer history of prompt repayments provide the credit bureau with more data points for computing his credit score. If a person has been consistent over longer periods of time, it gives more confidence to the lenders to approve credit to such a person.

What is the Impact of Credit History on Credit Score?

As seen from our table above, Credit History by itself doesn't carry a strong impact on the credit score. However, when in combination with other factors, it assumes higher importance.

Consider an individual who has a long credit history but he has missed credit payments and maxed out his credit card usage and on the other hand, there is another individual who has a shorter history but is regular with his payments and keeps a check on his credit card usage and doesn't use it beyond the prescribed limit of 30%. Who do you think will have a better credit score? No points for guessing; it is the person with the shorter history but with good performance on other important parameters that matter.

Therefore, it is wrong to think that just by having a long enough credit history, you can earn brownie points on your credit score.  It is only when you display responsible behavior towards credit in addition to having a long enough history will you see credit score in higher ranges.

Also, there is no measure to the minimum amount of credit history that is required to move up on the credit score scale, i.e. it is difficult to say that if you have a credit account for 3 years, your credit score will be above 600 or for 5 years and your score will move to 700. It is all an interplay of other factors determining your credit score too.

Additional Reading: How long does it take to improve your credit score?

How does Closing a Credit Account Affect your Credit Score?

While we understand that length of a credit history bears an impact on your credit score, it is also important to know how does closing a credit account impact your credit score. It is good to know that closing a credit account does have an impact on your credit score, but at the same time it is also essential to know what kind of impact it bears.

Impact of Closure of Loans on Your Credit Score

Loans could be availed for a multitude of reasons: to buy assets, to travel,  to meet personal emergencies or for higher education. Loans are granted for a particular tenure. You have the choice of either repaying your loan as the pre-decided tenure or prepaying it before the end of the tenure. Have you thought about the impact it would have on your credit score?

A pre-closure of a loan has a positive impact on your credit score as you have shown responsible behavior towards your credit and saved up extra to close your loan as soon as possible. It might also help you improve your credit mix depending upon the kind of loan you are closing. As a precautionary measure, whenever you close a loan account, get a certificate from your lender saying that you have paid off the entire dues.

On the other hand, if your loan account is closed on account of being Settled or  Written Off, then it leaves a negative impact on your credit score. This would also make that Credit Account be counted as Red.

Additional Reading: Learn more about the right procedure for closing a personal loan

Impact of Closing your Credit Card on Your Credit Score

Unlike a loan which is closed after all the EMIs are paid, credit cards can be perpetual accounts which need not be closed after a certain term. But there may be reasons why you would want to close your existing cards like getting a better deal with another card issuer or if you want to reduce your card usage.

Closure of an existing card account can result in drop in the credit score if you do not have other accounts with good years of history. Also, it does not mean that you can try to close off an account which has been in the negative. Closing any credit account does not mean that your responsibility towards repaying the account is waived off.


Credit History does play an important role in determining your credit score but it can result in good credit score only when you have been responsible towards other factors determining your credit score as well.