topic Opinions on how AAoA is calculated? in General Credit Topics

Opinions on how AAoA is calculated?

Anonymous — Sun, 29 Oct 2017 22:26:45 GMT

So having an old AAoA is important because it shows that you have a long history of managing credit. However, the way it is currently calculated doesn't really measure that. If I open 10 accounts today and close them next month, in 8 years I'll have and AAoA of 8 years even though I only have 1 month of managing credit. Wouldn't it make more sense to only calculate the time the account was open into AAoA to make it more accurate?

Re: Opinions on how AAoA is calculated?

Anonymous — Mon, 30 Oct 2017 01:25:57 GMT

Great question.

On the other hand, let's explore your example a bit further. Suppose you had one credit card that was 7 years old (and no other accounts). By then opening a ton of credit cards, that causes your AAoA to drop precipitously. (From 7 year to 0.87 years) The existing system permits the scoring system to not only capture that drop but to keep track of that. In the "open accounts only" approach, however. a person could artificially erase that scoring penalty by closing a lot of the open accounts.

Indeed, we often run into people who are newcomers here who think that if they pay off a card and close it, then that should cause everything bad about the account to vanish from scoring impact, including derogs, AAoA, etc. The current system ensures that once you make a decision that hurts your score, there's no immediate action you can take to make it magically go away, with the exception of utilization -- and even there the advent of trended data may change that too. (TD analyses, if they comes to maturity, will be able to examine a persons CC balances and payments month by month for the last 24 months, rathen than just the most recent balance.)

In the "closed and open both count" approach to AAoA, the closed accounts will eventually fall off, so the worry you have about accounts that have been closed for 8-9 years helping a person's AAoA will get resolved eventually. The closed and open approach also protects a person who has had a 20 year old credit card that gets inadvertently closed. Such a closure does not have any short or medium term affect on his age -- but in the open only approach it might cause his Age of Oldest Account to go from 20 to 2.

Note that scoring systems can still track open accounts separately if they want. FICO indeed does track how many open credit cards you have -- one open card helps you far less than three, for example.

A scoring system could in principle count how many months per credit card you have had it open (and therefore how many months you have had an opportunity to miss a payment). As an example, if you had three cards each open 12, 24, and 36 months respectively, that would be 72 possible months. A scoring system could certainly track that if it wanted to. That approach is just as easy to deliver dishonest results with as any other -- easier perhaps. All you'd need to do is open a bunch of junk cards (store cards typically) in the first few months of your profile and then not close them. After a few years you'd have racked up dozens and dozens and dozens of OK's where you hadn't missed a payment -- simply at leaving them at $0.

Re: Opinions on how AAoA is calculated?

Anonymous — Mon, 30 Oct 2017 04:54:50 GMT

Yes, on its own the existing process doesn't seem to make a whole lot of sense:

Let's say I've got three credit cards that I opened 10 years ago, and I have mananged them in the normal non-myfico sense (they each show some balance most months and have no lates). If I open two more cards, the AAoA drops to 6 years, but arguably, what has changed? I have still shown 10 years of good credit management, why should I be penalized merely because the two new cards are well, new. Sure, I get a hit for inq, and maybe that should be enough.

But, remember that FICO scores DON'T need to "make sense", if we believe the claim behind them. They merely predict risk, based on large DBs of past history. Anything that is not a protected class could go into the mix: e..g history might show that people with a highest-to-lowest CL ratio of 5 or greater are a bigger risk and the algorithm would take that into account. Or having many more Visas than Amex+MC is bad etc! Once known, these things can be gamed to a certain extent.

So presumably the current definition of AAoA works with appropriate weighting, until FICO 10, 11 or 12 whatever comes up with a more predictive figure.