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.

Very interesting, and thanks for the link MDtR-Chicago. What are your thoughts on when to cancel a churnable card?

I'm not a great person to ask. I churn much more slowly than most people here, for a variety of reasons, including the fact that I seem to be hit with manual credit report reviews every 2-3 years for lease applications and a high churn rate really confuses people.

However, in reality, you can often stretch out the time you keep a card and still be in a position to get the bonus again. Think of the AA and US cards. Lots of flexibility there.

I keep everything as long as I can without paying an annual fee (less retention/annual bonus) and without disrupting my slow churn schedule. And I've built up a buffer of several no-annual-fee cards, mostly thru product conversions. If I see AAoA dropping too low, I'll just PC more cards in the future to balance it out.

Not to hijack the thread but I had a question along similar lines. I have a short AAOA since I got my first card jan this year. My wife has a credit card that she opened six years back.
Can she make her creditcard account a joint account with me and will that showup on my history and increase the average age . We have similar FICO credit scores (750+).

I am an authorized user on a couple of her cards but that doesn't seem to help. The reason I am asking is I was denied for the explorer card due to short history.

Thanks for the help.

I can confirm that this is not true. Amex "backdating" just changes the "Member Since" year to the year your first Amex was opened. But when you pull your credit report, your account opened date is when you actually opened that particular account, not the date when your first Amex account. If you don't believe me, get your AAoA, then do a round of apps of Amex card(s). Asking them to "backdate." Get your AAoA again. The second AAoA will be lower.

I have had the opposite experience, where it does change the account opened date. Perhaps this has changed recently?

However, even with backdating, it could lower AAoA anyway. Let's say you have 4 cards, each at 5 years, plus an Amex at 3, with AAoA = (5+5+5+5+3) / 5 = 4.6

Add another Amex and it would be (5+5+5+5+3+3) / 6 = 4.3

Is that what you're seeing or does your actual credit report have a different date for account open?

(Also, the backdating is automatic, not something you need to call for - so perhaps something else is wrong here? Authorized user accounts don't factor into backdating anymore.)

Good counter example. But for me, my second credit card, which I was approved for 6 months after the first, is an Amex. And between that card and when I started to keep track of AAoA, I have opened at least 12 cards. Every time a new Amex is opened, AAoA drops. I confirmed this with different Amex reps, they said that backdating does not change your credit card's age of account on your credit report.

I found this thread: http://ficoforums.myfico.com/t5/Cred...g/td-p/1124167

Apparently they are backdating only the year, not the month. So if your first card was, say, January 2010, then the second was August 2010, it would show August 2010. But if the second was in March 2011, it would show March 2010.

I have no idea if this is accurate, since I don't know which months I opened accounts. I definitely see the backdated year, tho.

I have a Blue from American Express from around the late 90's. I closed it a few years later but it's still showing up in my credit report. If I apply for and get approved for a new Blue from Amex, and ask them to backdate it, would it show up as if I have had the card the whole time on my credit report?

If so, that would bump up my AAoA a little.

Backdating isn't something requested, it just happens with how the AmEx system reports to the credit bureaus.

If it's still on your credit report, opening it won't affect your AAoA is my understanding. Though if you think it will off your report, you can open it to preserve it.

Great info and thanks to MDtR-Chicago for explaining AAOA. I too misunderstood it as AAOOA -> AAO Open A. I had thought the purpose was to see how long you've had each account open and penalize those who don't keep the cards long (which means less business to the bank/network).

Oh, there are plenty of reports of that too. It's just not part of the score itself. But since the bank gets the full report, they can also run whatever algorithms they want, to deny you on their own proprietary terms.

MDtR, what is your opinion on keeping a few "no annual fee" CCs open for a long time? Does that help credit score or chances of getting approved in any way? Based on my previous misunderstanding of AAOA, I thought having a few such CCs open for a long time would increase the AAOA, but in light of how it is calculated, it seems there is no benefit to the score for having long opened accounts.

Now the only benefit I can think of is to have such a card from the major banks you continue to churn with, for establishing relationship purposes.

So if the actual AAoA is 11 months, will the credit bureaus report it as 0 to the lenders? If so, how did I get approve for cards like CSP & Amex BCP with only 4 to 6 months of AAoA?

Understand that I have no data to support my opinions... but here are my reasons for keeping a few no fee cards around indefinitely, in declining order of importance:

(1) There is a FICO element for "length of credit history" which is determined by the single oldest account. I'd like that number to continue aging as I do, so I keep a few accounts open in case one gets shut down for whatever reason.
(2) There is still the 10-year time horizon to consider. If I have a few no fee cards around growing into the decades of age, it adds a little more buffer to AAoA in the future.
(3) The relationship element you mentioned. I suspect it helps in reconsideration if the rep can see you've held on to cards from that issuer, not only churned them quickly. It also might make it easier to get a loan from a bank, either from the approval process or the actual application process itself.
(4) Promotions - sometimes those disused cards will offer spending promotions.
(5) Those empty credit lines help utilization. But if you're carefully managing your pre-statement balances, that shouldn't really matter.
(6) Turning around available credit more quickly - for example, some people have to wait 6-ish months for Citi to release credit that was previously held on a card. But if the card can be closed during reconsideration, then the credit is available immediately.

These all have to be balanced with the occasional reports of people denied because their raw number of cards open was too high and also the possibility those cards may need to be closed in a mortgage application review.

I assume this means the oldest open account.

Thanks for sharing your opinion!

I think closed accounts count as well but there's no way for me to test that, since my oldest is over 10 years.