Effects of spree with little history (was: if FICO rounds AAoA up to one year...)

[Anonymous]

This morning the amex credit tool told me I would be approved to spend $5000 so whatever the limit is, it is more than I would spend in a month outside special circumstances like a home renovation, so I'm good to go!

I was worried because the day I got it it told me I would be declined for $500 but that seems to have fixed itself as soon as I actually started using the card.

[Anonymous]

Update:

PRG showed up on my Experian bureau today -- NO change in score. I am not sure why, I was expecting to take a few points hit.

Theories:

1. I am already getting hit as hard as possible with new account penalty and no further penalty is possible.

2. Because it is a charge card it doesn't have a new account penalty

I did get dinged a few points when the HP hit my report, but the PRG itself hitting my report (two months later) didn't impact score at all.

[Revelate]

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@Anonymous wrote:

Update:

PRG showed up on my Experian bureau today -- NO change in score. I am not sure why, I was expecting to take a few points hit.

Theories:

1. I am already getting hit as hard as possible with new account penalty and no further penalty is possible.

2. Because it is a charge card it doesn't have a new account penalty

I did get dinged a few points when the HP hit my report, but the PRG itself hitting my report (two months later) didn't impact score at all.

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FWIW I never have seen a drop for a new tradeline reporting (assuming it reported $0 initially, if it reported a balance, can skew data on number of revolving tradelines with balance negatively) unless I moved across an AAOA boundary.

I did see a drop when I went from 2->1 years, I've never seen a drop with any of my sprees for tradelines hitting when I was at 1 year or when I was in 2 years for my first 3/4 accounts reporting.  I also have always had accounts <2 years old though if that's a breakpoint as has recently been suggested; with that 4 card spree where I dropped out from 2 years AAOA on my last reported tradeline, I was clean for 15 months before that.

[Anonymous]

Interesting. So "new account penalty" is a myth? It is all really about AAoA and inquiries?

I certainty didn't see any drop from the PRG posting but maybe since all my accounts are under a year and my AAoA is low it didn't matter.

[Revelate]

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@Anonymous wrote:
Interesting. So "new account penalty" is a myth? It is all really about AAoA and inquiries?

I certainty didn't see any drop from the PRG posting but maybe since all my accounts are under a year and my AAoA is low it didn't matter.

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Maybe, I'm only one reported case and there's some caveats: namely, my file is dirty, and the derogatories dominate my scorecard.  I'm awfully flatlined for long periods when it comes to my credit score regardless of model as there's probably an upward bound on whatever bucket I fall into based on my derogs is my assumption.  There would likely also be a minimum boundary too based on that.  It's also possible that my 16 months clean wasn't enough to reset the new account penalty though I think that's somewhat unlikely personally, jamie made a compelling argument that it wasn't possible under a FICO 8 model to hit an 850 with an account under 2 years of age that I haven't tried to verify yet but I trust his insight as at least possible.

I certainly treat the "new account penalty" as inquiry + AAOA damage with my awkward file, but that might not hold true for someone with a pretty file and as such YMMV.

[Anonymous]

So I think the app spam logic is even stronger: when you have a new credit file you should app everything you can to build a thick file fast. AAoA is basically zero no matter what you do and the inquirues will age off by the time you have a meaningful AAoA. Once they do the multiple accounts protect AAoA from normal lending activity going forward.

[Revelate]

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@Anonymous wrote:
So I think the app spam logic is even stronger: when you have a new credit file you should app everything you can to build a thick file fast. AAoA is basically zero no matter what you do and the inquirues will age off by the time you have a meaningful AAoA. Once they do the multiple accounts protect AAoA from normal lending activity going forward.

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How many do you really need though?  I fully agree, go out and establish 3+ accounts, but there isn't a whole lot of point to establishing a bunch of junk store cards when you can establish 7-8 quality cards over the course of the first year.  Also FWIW until you hit the 2 year mark, your AAOA counts as 1 year in the algorithm.  

I'm a huge proponent of app sprees, smart ones in particular, but app spam?  Nah, just makes one look dumb on a credit report in my opinion but I'm not an underwriter.  I have something like 19 trades on my personal credit report and I didn't even push boundaries from a building perspective.

[Anonymous]

For spending I only need 2-3.

For FICO, I view the number of accounts as "AAoA protection". Meaning, the more accounts you have, the less your AAoA falls when you add one more account. Assuming that in the long run adding new accounts is normal credit behavior, say, getting a car loan or a mortgage, the question is what will the impact be on your score? By adding more accounts early, you reduce the future impact on your score of normal credit behavior.

So, for example, if you have only 1 card and one day you add a 2nd account your AAoA will drop by half. If you had 3 cards and added the same account your AAoA would only drop by a quarter. If you had six cards and added that account your AAoA would only drop by a little less than 15%. In months, for someone starting out with a 36 month AAoA, that is the difference of an 18 month drop, 12 month drop, or 5 month drop in your scored AAoA.

Clearly there is a diminshing return here, the 7th card only saves you an extra half month of AAoA out of 36 versus the 6th card. 

From this logic I would judge the optimal number of accounts for someone with little credit hisotry  to be 4-5,  if you open them early in your credit history. Those 4-5 afford a lot more protection over 2-3 cards, but then the returns diminish--it's questionable that the 6th or 7th account really has enough extra protection to be worth much.

I had originally planned on this logic to have 4-5 cards but wound up with 6 because Amazon introduced that 5% cash back thing and I shop there enough it was worthwhile for me to app that. Otherwise I'd have had 5 cards, but instead now I have six. I paid about 5 points of credit score for that Amazon card over what I would have otherwised planned. C'est la vie.

[Revelate]

I agree with you, but we recently had a thread where it was somewhat suggested to get 50ish store cards, which struck me as patently absurd and when I saw "app spam" I immediately thought this was a rehash.  I typically open 3-4 accounts at a go with an occasional one-off.

These were the dates of my opening (first day of month listed in all for math purposes in Excel), one of the 1/1/12 cards is an Amex backdate from an app date of 1/13, but this was from my AAOA calc.  When my mortgage hits, I'll drop 2 months in my AAOA calc.  One other prior account not listed which was closed (delinquent) not listed here factoring into AAOA goodness.

10/1/11

12/1/11

12/1/11

12/1/11

1/1/12

1/1/12

2/1/12

8/1/12

9/1/12

1/1/13

1/1/13

1/1/13

4/1/14

5/1/14

5/1/14

5/1/14

[jamie123]

They say that the average person (If there is such a thing.) with a perfect 850 score has anywhere from 5 to 8 open credit cards. The AAoA of these cards is at least 10 years old and the youngest card is at least 2 years old.

I currently have 7 open cards and plan to have 8 after I buy a house. After the house loan closes, I want 2 more quality cards and then I'll close my Cap1 secured starting card and hit the garden for a long long long time.