topic Re: How CC Re-aging works? in Understanding FICO® Scoring

How CC Re-aging works?

Anonymous — Fri, 05 Oct 2007 18:47:38 GMT

Let's say one has 2 CCs.
10 year-old and 5 year-old.
The average age is 7.5 years.
Can some one explain a more complicated example, thus revealing exactly how the formula works? How about 1 10-yr CC, 2 3-yr CCs, 4 1-yr CCs, and 1 6-yr CC. If you have a simpler example on which to demonstrate the calculation, please provide one.

Re: How CC Re-aging works?

fused — Fri, 05 Oct 2007 20:48:01 GMT

ficus wrote:
Let's say one has 2 CCs.
10 year-old and 5 year-old.
The average age is 7.5 years.
Can some one explain a more complicated example, thus revealing exactly how the formula works? How about 1 10-yr CC, 2 3-yr CCs, 4 1-yr CCs, and 1 6-yr CC. If you have a simpler example on which to demonstrate the calculation, please provide one.

All accounts on your CRs are included when calculating average-age of accounts and credit length. It's very simple to calculate average-age of accounts. Just add then divide just like this. Example

Acccounts Age of Accounts

CC 1 opened 08/1979 (closed) = 28 yrs, 2 mos

Chase 2/1993 14 yrs, 8 mos

Auto loan 5/02 (closed) 5 yrs, 5 mos

CC 2 12/05 1 yr, 10 mos

CC 3 12/05 1 yr, 10 mos

CC 4 2/06 1 yr, 8 mos

Loan 5/06 (closed) 1 yr, 5 mos

CC 5 12/06 10 mos

CC 6 4/07 5 mos

CC 7 6/07 4 mos

Here's the calculation: add-up the total number of months from the time every account was opened, then add, then divide the total months by number of accounts, then divide by 12.

Here's what mine came out to:

total months of history on all accounts 679 months

total number of accounts is 10

679/10 = 67.90 average-age of months per account

67.90/12 (a year) = 5.65

So the average-age of my accounts is a little over 5 1/2 years and my credit length is 28 years and 2 months because it goes by your oldest account. Rather accounts are open or closed, they are factored exactly same way when it comes down to average-age and credit length.

Re: How CC Re-aging works?

Anonymous — Fri, 05 Oct 2007 21:28:18 GMT

Thanks for the example. This is confirmed knowledge, right? That when they refer to "average", there is no complicated algorithm behind it. That it's just simple average.

My next question then is while the age of the oldest account is probably considered nicely when calculating the score, how much of a 'distraction' does the average age of CCs is on the score? The reason why I ask is because the FICO formula seems to rely on seeming contradicting factors like too few of TLs vs. too many, the oldest CC vs. average age, been looking for new credit vs. looking for too much credit lately (hard inqs, too many new TLs of late, etc), and I suspect a few others. What factors are given more preference when dealing with such opposing issues?

Re: How CC Re-aging works?

Anonymous — Fri, 05 Oct 2007 21:42:44 GMT

If all types of accounts are taken into consideration, I understand that the average age of the credit history would fluctuate when, say, a fulfilled auto loan or closed CC eventually dropped off the report. But realizing that it's almost always a bad idea to close your oldest CC, once someone has decided they have enough CCs, because after all, they somehow frown upon one having too many CCs, and also because you know you don't really need any more cards, isn't it counterproductive to continue to obtain more cards, thereby reaging the history? But then again, the formula wants to see you applying for new credit too, so that's why I ask how much of an impact does reaging have compared to the 'looking for new credit' factor? In other words, is there a well-balanced approach to all this?

Message Edited by ficus on 10-05-2007 02:42 PM

Re: How CC Re-aging works?

fused — Fri, 05 Oct 2007 22:33:12 GMT

ficus wrote:
Thanks for the example. This is confirmed knowledge, right? That when they refer to "average", there is no complicated algorithm behind it. That it's just simple average.

My next question then is while the age of the oldest account is probably considered nicely when calculating the score, how much of a 'distraction' does the average age of CCs is on the score? The reason why I ask is because the FICO formula seems to rely on seeming contradicting factors like too few of TLs vs. too many, the oldest CC vs. average age, been looking for new credit vs. looking for too much credit lately (hard inqs, too many new TLs of late, etc), and I suspect a few others. What factors are given more preference when dealing with such opposing issues?

You are asking some very good questions one of which I'm not 100% on. I'm not sure about the credit length v. average-age of accounts question, I'll have to look into it.

I suppose it's possible too few TLs could prevent your scores from improving but not too many TLs, no way. Again as I already posted it's how well you mange your accounts...ya know paying on time and keeping your CC util very low.

FICO scoring has what's called scorecards (aka pools, buckets) and this ensures everyone is compared with others who have similar credit files. In other words, apples are being compared to apples and not apples to oranges. So depending on which scorecard you are in, some actions like apping for new credit can boost your scores (if you have bad scores) or tank your scores (720+ club).

Message Edited by fused on 10-05-2007 12:33 PM

Re: How CC Re-aging works?

fused — Fri, 05 Oct 2007 22:17:42 GMT

ficus wrote:
If all types of accounts are taken into consideration, I understand that the average age of the credit history would fluctuate when, say, a fulfilled auto loan or closed CC eventually dropped off the report. But realizing that it's almost always a bad idea to close your oldest CC, once someone has decided they have enough CCs, because after all, they somehow frown upon one having too many CCs, and also because you know you don't really need any more cards, isn't it counterproductive to continue to obtain more cards, thereby reaging the history? But then again, the formula wants to see you applying for new credit too, so that's why I ask how much of an impact does reaging have compared to the 'looking for new credit' factor? In other words, is there a well-balanced approach to all this?

Message Edited by ficus on 10-05-2007 02:42 PM

1.) Again good questions but this time around I can answer them. There is no rule on having too many CCs as far as FICO scoring goes, it's how well you manage them.

2.) Yes, I do think it's counterproductive to continuously app for CCs for the reasons you posted.

3.) New credit well it's a bit tricky. For those with lower scores, thin credit files or short histories obtaining new credit can be a good thing. These types of folks take much smaller hits to their scores compared to someone who is in the 720+ club.

A well-balanced approach? I need more info: your FICO scores, list all of your accounts and include dates opened, CLs/balances, loans, mortgages, and baddies (COs, collections, public records, etc.) and inqs.

Re: How CC Re-aging works?

Anonymous — Sat, 06 Oct 2007 00:39:49 GMT

Thanks. I understand the issue better now. While it's all not written in stone, these are definately useful insights. Experience based on personal and other people's circumstances lends a more sophisticated understanding.

With a recently approved new CC on its way, I'll have a total of 3 CCs, with a total CL of $10,500.
No lates, no COs, no BK, no loans of any kind. 1 public record: a tax lien that has been paid off but not released yet. A month ago, my FICO scores were TU 730, EQ 701, EX 671. I had just made a purchase days before and one of my CCs was reporting over 50% of util for that month. I have since taken care of the util problem, and the tax lien was only being reported on EX. Hence the lowest of the 3 scores. I have just been approved for a 3rd CC. I'm going to wait a month or so to pull the scores to make sure that all these changes had been applied to the reports. My oldest CC now is 13 years old. All considering, I anticipate the TU and EQ scores to pass and remain beyond the 720 marker, with EX possibly still trailing below 720 because it's reporting the lien.

I remember seeing a post where people talked about how salary didn't matter in general. Well, my recent experience certainly proved otherwise. At least it's not the case with my circumstances. When I tried to apply for a card, I was originally denied. The letter listed the lien as the reason. But when I called to ask for reconsideration and explained that the lien had already been paid off, and that I could provide proof, they said that they could approve me and that no documentation would even be required, and that the reason why I got denied was because they couldn't contact me to ask questions. Anyway, when it came to discussing the CL issue, they said that they have a policy of not extending the CL of over 50% of the income specified on the application.

I had to speak with 3 different people on 3 different occasions, but in the end I got my card. This experience reinforced some already known facts and revealed some new ones for me.

Takes perseverance to get what you want.
Different people could look at your situation differently.
Every company goes by a slightly different set of policies when assessing risk.

Re: How CC Re-aging works?

haulingthescoreup — Sat, 06 Oct 2007 01:05:40 GMT

@Anonymous wrote:

I remember seeing a post where people talked about how salary didn't matter in general. Well, my recent experience certainly proved otherwise. At least it's not the case with my circumstances. When I tried to apply for a card, I was originally denied. The letter listed the lien as the reason. But when I called to ask for reconsideration and explained that the lien had already been paid off, and that I could provide proof, they said that they could approve me and that no documentation would even be required, and that the reason why I got denied was because they couldn't contact me to ask questions. Anyway, when it came to discussing the CL issue, they said that they have a policy of not extending the CL of over 50% of the income specified on the application.

Unless I'm reading something wrong, this is an example of FICO doesn't regard income, but your lender certainly does. The lender said that they have a policy of not extending the CL over 50% of the income specified on the application. Yes, they looked at your FICO score, but they also looked at your application with its additional info (as any sensible lender would do), and decided that your debt-to-income would be a little too high for their comfort. FICO scores are only one part of the picture that the lender looks at.

When you're in the middle of the frenzy, it can be hard to remember who has which standards.

Re: How CC Re-aging works?

fused — Tue, 09 Oct 2007 19:42:51 GMT

ficus wrote:
Thanks for the example. This is confirmed knowledge, right? That when they refer to "average", there is no complicated algorithm behind it. That it's just simple average.

My next question then is while the age of the oldest account is probably considered nicely when calculating the score, how much of a 'distraction' does the average age of CCs is on the score? The reason why I ask is because the FICO formula seems to rely on seeming contradicting factors like too few of TLs vs. too many, the oldest CC vs. average age, been looking for new credit vs. looking for too much credit lately (hard inqs, too many new TLs of late, etc), and I suspect a few others. What factors are given more preference when dealing with such opposing issues?

Average-age of accounts does not contradict credit length. In FICO scoring, average-age of accounts is simply one element of credit length.

Re: How CC Re-aging works?

Anonymous — Mon, 15 Oct 2007 20:43:50 GMT

@fused wrote:

Rather accounts are open or closed, they are factored exactly same way when it comes down to average-age and credit length.

I'm a bit confused I guess. I was under the belief that once you close an account it stops aging. So if I were to have opened a new account in Jan-06 and closed it in Mar-06 then it's age would be 2 months as of today, not the 21 months that I would calculate by that statement.

Re: How CC Re-aging works?

fused — Mon, 15 Oct 2007 21:17:05 GMT

@Anonymous wrote:

@fused wrote:

Rather accounts are open or closed, they are factored exactly same way when it comes down to average-age and credit length.

I'm a bit confused I guess. I was under the belief that once you close an account it stops aging. So if I were to have opened a new account in Jan-06 and closed it in Mar-06 then it's age would be 2 months as of today, not the 21 months that I would calculate by that statement.

No, aging begins on both closed and open accounts when they are opened. This account opened in 01/06 would have an age (including our current month Oct 07) of 21 months and will continue to factor in average-age of account scoring until Mar 2016.

Re: How CC Re-aging works?

haulingthescoreup — Mon, 15 Oct 2007 22:10:40 GMT

fused wrote:No, aging begins on both closed and open accounts when they are opened. This account opened in 01/06 would have an age (including our current month Oct 07) of 21 months and will continue to factor in average-age of account scoring until Mar 2016.

Are we talking two clocks running here? One clock (the aging clock) starts the month and year that a card is opened, whether that card is now open or closed, and it records the age of the account, increasing every month, as long as the account stays on the history. So on the hypothetical opened-in-Jan-06, closed-in-mar-06, this clock started running in Jan 06, and it's still running.

The other clock (the how much longer it stays on your report clock) starts on cards that are closed (and on loans that are paid off??) on the month and year that they are closed, and that clock runs for 10 more years, at which point that CC/ loan falls off the history. On the short-lived account, this clock started running in March 06, and it will run until March 2016. Yes? No? (it's been a long Monday)