11-12-2013 10:43 AM
I current have an overall AAOA of 5 years almost at 6 (oldest closed account is 23 years and oldest open is 9 years).
I have 14 open accounts and 12 closed accounts. Of the14 open - 12 are student loans from 2008 - 2012 = 44.90 aggreage age of accounts/12 = 2.4 AAOA just for the SL accounts.
I want to consolidate the student loans to reduce my monthly payments and improve my DTI for a mortgage; however, I'm afraid it will reduce my overall 5 year AAoA since I'd be closing 12 open accounts to opening 1 with the consolidation. btw - they are all in great standing - paid on time.
I'm selling a home in the spring and building a new one. My current credit scores are 672/669/652. I'm hoping to be close to or over 700 in 6 months but don't want to mess it up with a SL consolidation.
Can anyone give me recommendations - confirming if consolidating 12 SL tradelines will kill my credit scores and hurt my chances of increasing it as planned.
11-12-2013 12:54 PM
Your AAoA won't be reduced because of closing. AAoA scores all accounts (open or closed). Your score will benefit greatly going from 12 installments of student loans to 1. But you won't see that score boost until 6 months after consolidating, because you'll take a score ding for opening a new account.
11-13-2013 02:09 AM
Thanks for responding. Then can you help me understand why credit experts states never to close older accounts?
As mentioned, even when closed, they still fully factor into your length of history, AAoA, and mix of credit. With that said though, here are some reasons not to close older accounts:
1) Even if factored in to length of history/AAoA, closing older accounts will start the 10-year clock on their deletion since most positive and closed accounts will automatically drop by 10 years from that closed date, if not sooner. It's not uncommon to have a CRA drop the TL earlier (or later). So 10 years out, it can hurt your score when it drops (depends on what's reporting by then).
2) Paying off a loan would have a lot of positive benefits like improved DTI, having less debt, saving interest, and potential FICO boost as another TL reports $0. Unlike installments, paying off a revolving account can impact your credit in the long term but it can also impact utilization since $0-balanced CCs still factor into util when open, but not closed. Closing a paid off CC will increase your overall revolving util and that can decrease your FICO.
3) Finally, FICO does frown on not having enough TLs open. There's a FICO scoring code for having too few open accounts and some lenders will frown if not enough accounts are open.
OP, in your case you'll be OK provided you have TLs outside of these SLs, like CCs. As you mentioned, DTI could improve and there might be a good chance of a score boost with the added $0 balances. There might be a hit for adding the new TL so try to give as much time as possible in between this new loan and the mortgage app.
11-13-2013 06:10 AM
Then can you help me understand why credit experts states never to close older accounts?
Be careful relying soley on broad, sweeping generalizations like that. The decision on whether or not to close an account needs to be based on the priorities of the individual. Generally that advice is given as the "10 year clock" starts ticking on closed accounts as stated above. However, there are certainly many possible reasons why one would choose to close an account.
11-13-2013 07:23 AM
Just a thought also, be careful not to lose benefits like debt forgiveness by consolidating... if some of those loans are federal.
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