Posted by William Charles on November 5, 2014
Credit Scores

Published on November 5th, 2014 | by William Charles

18

How Average Age Of Accounts Is Calculated & Affects Your Credit Score

On this blog we often talk about something called your average age of accounts (AAoA), we’ve had a few e-mail queries recently about how this is calculate and how it affects your credit score. Before we go any further it’s important to understand that there are lots of different credit scoring models. In this article we will mostly talk about two scoring models: VantageScore & the FICO Score.

  • FICO Score: AAoA is part of your “length of credit history” which accounts for 15% of your total score.
  • VantageScore: AAoA is part of your “depth of credit” which accounts for 9% of your total score.

In both cases AAoA isn’t the only scoring factor in these categories. They also look at your oldest account (which has more weight to it than your AAoA), when your newest account was opened (less weight) and how long since specific accounts have been used (almost no weight).

There is one key difference between FICO & Vantage scores at the moment. When calculating average age of accounts VantageScore does not include closed accounts, whereas FICO does. This might not seem like it would make a big difference, but it does. Closed accounts stay on your credit report for a period of up to ten years. Let’s look at how this would affect your average age of accounts when looking at the two different models.

It’s my opinion that when FICO9 is released (latest version of the FICO score) that they will no longer include closed accounts in your average age of accounts. This makes sense, because one of the reasons AAoA is looked at is because it shows how long you’ve displayed good or bad behavior. For example, if my AAoA is 15 years and I have no late payments then the chances of me making a late payment is extremely small. If my AAoA is 2 months and I have no late payments, then it’s much more likely that I’ll make a late payment as there isn’t a lot of history of me paying on time. By including closed accounts the FICO score increases your AAoA artificially. There is no chance you can make a late payment on a closed account, therefore it shouldn’t be included as it’s not a good gauge of calculating risk.

There are three important take aways to remember:

This doesn’t mean you should pay annual fees on credit cards just to keep an account open. Instead what you should do is this:

  • Call and see if they will waive the annual fee or offer a retention bonus
  • If this is not possible, ask to downgrade to a no annual fee card. Make sure that this isn’t a new credit inquiry and that you’ll keep the account age.

[Read:  Best Downgrade Options & Rules For Each Card Issuer]

Any other questions about average age of accounts or how credit scores are calculated? Ask in the comments section. If you want access to your FICO score for free then click here to view different ways to get it. There are a number of different ways to get your VantageScore:

 



18 Responses to How Average Age Of Accounts Is Calculated & Affects Your Credit Score

  1. Ben says:

    I had no idea the new FICO9 would NOT include closed accounts. Any idea on when this will be released? And how long after it is released will it start to be used by lending institutions?

    The fact that closed accounts were counted for AAoA was extremely helpful to me and if it goes away I will definitely have to rethink my strategies about closing AND opening new cards. This is some of the biggest news I’ve heard of in awhile at least IMO.

    • At the moment this is just my speculation based on a few things I’ve heard/read, this change may not eventuate.

      It’s also important to remember that new versions of FICO take awhile to be adopted by card issuers as they like to see hard data on how it affects things like approval and default rates.

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  3. J.C. says:

    Closed accounts do not remain on your credit report for seven years. Seven years is the limitation for reporting certain derogatory information. Positive closed accounts can remain for up to ten years.

  4. Grant says:

    Great summary Will. I had no idea AAoA included closed cards, that doesn’t make much sense, but I will gladly take the few bonus credit score points 🙂

  5. J.C. says:

    Under your theory of AAoA and the prediction of late payments, then every closed account should be removed from one’s credit reports as irrelevant. You fail to remember that even if your account is 15 years old, late payments — as with most other derogatory data — do not remain for longer than 7.5 years. So when looking at negative history, every account, open or closed, is virtually irrelevant after 7.5 years. You also fail to see the value in, for example, 15 years of solid history on an account recently closed as predictive of future behavior.

    You are simply wrong about how AAoA works. The value of AAoA is to predict risk based on how new your credit is, on average. AAoA goes down with new accounts and goes up with refraining from opening new accounts. The folks at FICO always tell you, only open accounts when you really need them. The risk factor calculated by AAoA pertains to new credit and late payments and not account age and late payments. This is why FICO tells you time and time again that the only negative consequence of closing an old account is your credit utilization ratio.

    AAoA is looked at because it displays how long, on average, you have displayed behavior, whether good or bad. Late payments or lack thereof then drills down as to whether or not that behavior is good or bad. And since late payments drop after seven years, under your theory AAoA of over seven years is useless. Again, that’s why age is one factor and late payments are a different factor.

    You should downgrade from Doctor of Credit to Nurse of Credit.

    • > You also fail to see the value in, for example, 15 years of solid history on an account recently closed as predictive of future behavior.

      That’s not true at all. That account is indicative of future behavior, but it should be counted as 15 years of solid history, not 22.5 or 25 years. When an account closes, it makes no sense to let it continue to age as it’s no longer giving you an indication of risk as you can make neither on time payments or late payments.

      > AAoA is looked at because it displays how long, on average, you have displayed behavior, whether good or bad.

      Exactly, you’re not displaying any behavior when an account is closed because you’ve lost the ability to make on time payments or late payments.

      > And since late payments drop after seven years, under your theory AAoA of over seven years is useless.

      No it’s not. If your oldest account is 15 years and your AAoA is 10 years and you have no late payments on your credit report then your risk of becoming delinquent is lower than somebody who has an oldest account of 7.5 years and an AAoA of 7.5 years.

      Who has more credit risk? Somebody who has an average age of accounts that is 15 years and no delinquencies and all of their accounts are still open? Or somebody who has an AAoA of 15 years and no delinquencies but closed all of their accounts 7.5 years ago? That’s the difference between letting closed accounts age and not.

      > You should downgrade from Doctor of Credit to Nurse of Credit.

      You make it sound like being a nurse instead of a doctor is an insult. I also don’t think you really understand what type of doctor I am.

      • Ted says:

        How would we know what king of doctor you are?

        You use a fake name.

        I won’t trust credit advice from someone who won’t even disclose who he is or who he works for.

        • I use a pen name precisely because of my work, it’s part of my contract to not disclose my employer when doing hobby projects such as this. Not sure why you’re reading this blog if you don’t trust the advice given. Please troll elsewhere.

        • James says:

          Williams Charles has a great blog going here.

          There are plenty of other CC blogs controlled by affiliated links interests.

          If you do not like it, go over to a different blog!!!

      • C.J. says:

        don’t feed the trolls

  6. Nate says:

    So when you close a card they continue to add age to that card? Or does it stop aging. When I think average I think the average of 5 years a card just opened is 2.5 years. But some posts seem to indicate that this calculates to 5 years plus the new card by just adding them together. So Im a little confused. By saying they continue to count it, doesn’t that mean you could have no cards open and still be aging and helping your credit with a card you closed last year? Thanks in advance.

  7. Jason says:

    I have 3 Chase cards (Disney, Slate, and Freedom) All are paid off and at $0 balance. Freedom AAoA is 16 years, I’ll be keeping this open as it is my oldest account and transferring all the limit ($10,000) except $500 (so $9500) to my Disney card. Then from my Slate card also transfering all $3300 limit to my Disney card ($2300) and closing my Slate card. Bringing my Disney card to $15,100 limit total and $500 on the Freedom card. By doing this it keeps my utilization and my total limits exactly the same, no limits have changed and no balance has changed. I cancel the Slate card. How if at all since it does not effect my utilization, would the cancelation of my Slate card effect my AAoA?
    Thanks,
    Jason

    • Depends on the credit scoring model, some models do not count closed accounts, some do. FICO does count closed accounts, so you’re AAoA wouldn’t change in the short term. But when that account falls off your report (~7 years) it will stop counting towards your AAoA. I would probably just ask if you can product change the Slate to another Chase freedom, that way you keep the account age going forward AND get another $1,500 at 5% cash back each quarter.

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  9. Dan says:

    Hi Doc,
    I have a question that I’d like to clear up. Feel free to point me to a good link that explains if that is easier (or previous DoC post). This is all related to average age of account and the best way to manage card churning. I’ve read that a closed account stays on your credit report for 10 years, and I’ve read mixed things that say for instance on FICO, a closed account will continue to age and impact avg age of account (presumably to the point until 10 years after its closed and then it drops off your account)(ex, so an account thats closed at 6 months will continue to impact avg age of account and there’s nothing you can do, and then 10 years later that account will have an impact of 10.5 year, but will suddenly drop off). I’m asking this from the perspective of say Im churning citi AA cards, is it ever beneficial to close the card that’s 6 months old (if I’m not going to use it)? I would be closing in hopes that the closed account would not factor a low aged account into my avg age of account (and therefore hopefully boost my average age of account). But the way Im reading some things, it almost seems like it would be best to keep these accounts open (assuming they werent hindering the ability to get approved for more cards, which at some point that would be the case). Anyways, a lot of people throw around the turn of average age of account with a basic understanding of how it works, but Im interested in the specifics, particularly as it relates to closing accounts and how closed account continue to impact the avg age calculation over time. Thanks in advance for the reply

    • Dan says:

      I reread the above post. It seems clear that for FICO, there is no benefit to closing, cause the account will continue to age and impact average age of account regardless. In fact, you could even say that it would be pointless to close, cause it means that in 10 years your aged account will drop off sooner (as opposed to being an account that stays open longer and stays on your FICO report longer). But what about for Experian, TU, and Equifax? Will closing these low aged accounts (say an account thats 6 months old) be beneficial for the average age of account for those scores? Meaning will the account age be immediately dropped for the AAoA calculation?

  10. aj says:

    I want to increase my credit age. So I am planning to join as an authorized user in my sister’s CITI Double Cash Credit card. But CITI is not asking for my SSN, I doubt they will report to the credit bureau and it will increase my credit age?

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