topic Re: Close accounts to improve AAoA? in Understanding FICO® Scoring

Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 00:35:10 GMT

Hi All,

I'm trying to get the quickest boost to my credit score over the next month (in anticipation of buying a vehicle). I had 3 credit cards report at over 80% util that I went ahead and paid off. I also sold my car, so within the next few weeks I'll have no debt. The 3 credit cards that were over 80% were opened back in March. Would closing these help my AAoA (1 year 1month, oldest being 3 years 8 months). Would it even be worth it? Does AAoA have that much weight on my score?

Thanks!

Re: Close accounts to improve AAoA?

RobertEG — Mon, 24 Aug 2015 00:52:51 GMT

Closed accounts are still part of your AAoA calculation.

You would need to get the creditor to delete the account in order to remove from scoring.

Re: Close accounts to improve AAoA?

CH-7-Mission-Accomplished — Mon, 24 Aug 2015 04:05:26 GMT

Be sure to keep at least one of those credit cards reporting between 1% and 9%. FICO will ding you 15 points for having all zero balance credit cards.

Also you say you just sold your car so will have no debt. Does this mean you paid off a car loan? If yes, you can expect to see a 20 point hit on your scores from paying off your only installment loan (assuming you don't have studen loans or other installment loans).

You are always better off buying a new car while your existing car loan is still reporting.

Re: Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 04:47:57 GMT

Sorry for the misunderstanding! I do have a mortgage, but in my brain I categorize that debt differently from my car/credit cards.

So I'm currently sitting at a 644 credit score, as per the car dealership. They offered me a 7.4% rate (6 years, $38k loan) which I wasn't happy with. My current credit report shows my car loan (~$6000), and all of my high credit card balances (~41% total util, but 3 of them sitting at 80%+). In the past few days I sold my car and paid off all of these credit cards except for one that sits at ~9%. I was going to wait for this all to report then secure funding. Does that seem like the best route?

Re: Close accounts to improve AAoA?

Anonymous — Mon, 24 Aug 2015 05:19:14 GMT

@guykara wrote:
Sorry for the misunderstanding! I do have a mortgage, but in my brain I categorize that debt differently from my car/credit cards.

So I'm currently sitting at a 644 credit score, as per the car dealership. They offered me a 7.4% rate (6 years, $38k loan) which I wasn't happy with. My current credit report shows my car loan (~$6000), and all of my high credit card balances (~41% total util, but 3 of them sitting at 80%+). In the past few days I sold my car and paid off all of these credit cards except for one that sits at ~9%. I was going to wait for this all to report then secure funding. Does that seem like the best route?

Yes, it would be wise to wait - once the cards report the updated balances you'll get some FICO love.

Re: Close accounts to improve AAoA?

CH-7-Mission-Accomplished — Mon, 24 Aug 2015 05:22:13 GMT

I think it's somewhat of a crapshoot. You will get score increases from the cards being paid down but if the car loan updates to paid, you may take that 20 point hit I mentioned. So up 20, down 20?

I do agree at this point you just have to wait it out and see where things end up in 30 days.

Re: Close accounts to improve AAoA?

cakkd — Mon, 24 Aug 2015 11:59:19 GMT

Perhaps I'm overstepping here, but if you have credit troubles, why in the heck would you buy a $38K car, a depreciating asset?

Me thinks budgeting and making sound financial decisions will lead to a better FICO score, and are ultimately more important.

Re: Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 14:12:33 GMT

Thanks! Would I still see a 20 point drop if it's not my only installment loan (the other being my mortgage)?

Re: Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 15:23:45 GMT

No worries and I definitely appreciate your concern!

I haven't had a late payment in over 6.5 years. I'm just waiting for two CO credit cards from 7 years ago to fall off, and I'm going to have a totally clean credit report. I think my credit score is low at the moment because I just purchased a home in March, and purchased some furniture, etc. on interest fee financing. I went ahead and paid off all of that (except for one CC that's at 9%). My income is >$110k and I split my monthly payments (other than the future car) with my fiance. If I move forward with purchasing a vehicle, my two debts will be my home and my car. Based on this information, do you still think it's not a financially sound choice?

Thank you

Re: Close accounts to improve AAoA?

cakkd — Mon, 24 Aug 2015 15:18:30 GMT

Traditionally, car are considered poor investments, and car loans frowned upon. But, hey, I have one (albeit for significantlyless than yours) so I can't exactly throw stones.

I'd say it depends on what your debt-to-income ratio would be.

My goal is to have no debt besides my mortgage within the next couple years.

Re: Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 15:23:00 GMT

Sure! I frequent reddit.com/r/personalfinance and I know that I would get TORN up if I asked their opinion on this purchase. Trust me, I'm not buying a new car as an investment. I get great enjoyment out of driving a luxurious vehicle and think I'd get great use out of a SUV. I have a 6 month emergency fund set aside, and can comfortably afford the payments of a $38k loan (while continuing to add to savings). I appreciate your feedback!

Re: Close accounts to improve AAoA?

Revelate — Mon, 24 Aug 2015 18:00:19 GMT

@guykara wrote:
Thanks! Would I still see a 20 point drop if it's not my only installment loan (the other being my mortgage)?

Not entirely sure; I'm waiting for my own mortgage to report and what happens. Is possible mortgages are counted outside the normal installment debt.

My gut feeling though, you won't see a drop and you made a smart move both financially and FICO wise. I wouldn't worry about it anyway.

Re: Close accounts to improve AAoA?

guykara — Mon, 24 Aug 2015 18:37:15 GMT

Cool, thanks!