Average account age question
 

Please move this if there is a better forum for it. I have read many things posted about leaving cards open so you do not shorten your average account age. My average account age is 28 months. When I sign up for cards just to earn a bonus wouldn't I increase my average age if I canceled the card after a year, or any time shorter than 28 months? If I cancel the card does that closed account age stay the same (a year for example) and that closed account stay on my report dragging my age down forever more?

AAoA includes closed accounts, for as long as they stay on your report. Usually, that's 7-10 years.

Every new account lowers the AAoA. But each year adds one more year to every account on your report, including the closed ones. Just pick an application pace that leads to your target AAoA.

To understand FICO scoring, read the forums at myfico.com

Thanks for the quick explanation and the reference to myfico.com!

Yes, the longer any card is left open, the longer the AAoA history. So that is why many say to keep even churn cards open as long as possible. Canceling a card at 1 yr will be better for your history than canceling the card at 3 mths after meeting minimum spend. Remember the formula is bases on an AVERAGE.

Only in the sense that the bank reviews your history and sees you are not committed to keeping and using your cards.

As far as AAoA, it only matters 10 years after closing - so canceling at 3 months vs. 1 year determines if you have a card that drops off after 10 years of age or 11 years of age.

Also, remember that amex backdates all your accounts to the oldest one. So, if you'be been an amex cardholder for a while opening a new account with them may bump up your AAoA.

why would one more year be added to closed accounts?

Because that's the way FICO works. Every account's age is calculated from its open date until it falls off your report.

So let me understand this; the account age continues to increases every year, even for the accounts you close? In other words, if I opened an account for a particular card five years ago, and closed it out after six months, the age of that account would be five years, not six months?

Correct. Think of it this way: The piece of data on your report is the date you opened the card. When the FICO is calculated, the system computes the age of each account at that moment, in real time, without regard to open or closed status, then takes the average across all the accounts.

The purpose of AAoA is to understand how "steady" you are in using credit. If it's very low, it indicates you have intense activity recently, which could indicate risk that you're about to go broke. If it's high, it means you've taken a long term view on credit, keeping your cards for the long term - or, if you have many (churning) accounts, demonstrating you can manage many cards in the long term. Either of those is less risky than someone who has "ramped up" applications recently.

Great info...I apparently misunderstood AAoA before I read this thread.

For those interested in reading more, the official FICO site refers people who want to know about AAoA to this community thread: http://ficoforums.myfico.com/t5/Unde...date_ascending

Make sure you read through the whole thing; essentially, the thread is a bunch of people from the myfico forum reverse engineering AAoA and deciding it includes closed accounts, and that those accounts keep aging.

And actually, if you're going to take the time to read that, you should also read the official explanation of exactly what goes into the FICO score: http://www.myfico.com/crediteducatio...yourscore.aspx

They (intentionally) leave out many of the details and, take note, that's just an approximation of the algorithm, as the weightings differ based on your "tier" in the algorithm. But it's a good start.

Thanks for the info!! I misunderstood the calculation the whole time...

Interesting that Credit Karma, evidently, uses only open accounts in calculating its FAKO score. In its explanation of "Age of Credit History" in my Credit Report Card, it refers to my Oldest Open Account being 18 Yrs 7 Mos, and my Newest Open Account as 0 Yrs 2 Mo. It makes no mention of the age of closed accounts, as apparently, it does not factor that into its equation.

It's also important to note that the officially reported AAoA is truncated to the full year. So if you calculate your AAoA to be 35 months, the credit bureaus report it to be 2 years.