Too Few Accounts Payed as Agreed versus average age of accounts?

[Anonymous]

After a divorce, I am looking to imporove my credit (698-701).  My only open accounts are a car loan and credit card that I opened once I was single.  As such, my average age of accounts now registers between 2 and 4 years (depending on who is reporting) .  In pulling my FICO from my CC, the number 2 reason for my score is "Too Few Accounts Payed as Agreed".  Both accounts have been paid on time 100% since opening, so I am assuming that "FEW" is the operative problem.  I would open a new aggount, but am wanting to know the relative benefits and liabilities associated with further decreasing my average account age (as well as hard inquiry).  Which has greater impact and for how long?

Thanks,

H

[Anonymous]

So these are the only 2 accounts on your credit report?  Or, are these just the only 2 open accounts you have but you also have closed accounts on your report?  This is important to know.  If you have less than 5 accounts on your credit report, many consider this to be a "thin" file.  In order to thicken it, you'll want to add a few more accounts.  When adding accounts, your score will temporarily drop due to the inquiries, new accounts and age of accounts reductions.  These decreases are generally overcome within 6 months and in 6-12 months your scores will grow greater to what they were prior to adding the accounts.  Think of it as taking a small step back in order to take a large step forward.  As long as you aren't looking to apply for a loan or mortgage within the next year, there's really no harm in adding a couple more revolvers to your profile at this time IMO.

[Kree]

A good credit score is a long term game.

2 accounts aged 2 years gives you 4 total years, because 2x2=4 and 4/2=2

If you add a third account. suddenly 4/3=1y4m

But if you add a fourth at the same time 4/4=1  Not much lower than 1y4m

A fifth,  0y9m

Now lets look at numbers in 6 years.

2 accounts averaged 8 years

add third  drops to 5y3m

add a fourth drops to 4

add a fifth drops to 3y3m

Huge differences, but if you have the 3 now

In 6 years you have 7y1m

With 4 now  7y

with 5 now 6y8m

So, in summary, the more accounts you open now the less variable your score will be in the future. The question is, can you afford a lower credit score for the next 24 months?  Both from lower AAoA, new credit, and several inquiries.  

As another note, you can have a 850 score with 1 CC.  It is doable, but will take many years.

EDIT: just realized in review I did not show lower variability when adding additional cards in the future after aquiring more cards now.  But I don't have time to do so. If requested I can toss something together later.  Although this really is a spreadsheet problem not the simple mental exercise I wanted to put forth.

[Anonymous]

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@Anonymous wrote:

So these are the only 2 accounts on your credit report?  Or, are these just the only 2 open accounts you have but you also have closed accounts on your report?  This is important to know.  If you have less than 5 accounts on your credit report, many consider this to be a "thin" file.  In order to thicken it, you'll want to add a few more accounts.  When adding accounts, your score will temporarily drop due to the inquiries, new accounts and age of accounts reductions.  These decreases are generally overcome within 6 months and in 6-12 months your scores will grow greater to what they were prior to adding the accounts.  Think of it as taking a small step back in order to take a large step forward.  As long as you aren't looking to apply for a loan or mortgage within the next year, there's really no harm in adding a couple more revolvers to your profile at this time IMO.

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Thanks for the reply.  No, these are the only two open accounts on my report.  I had numerous lines of credit, mortgages, etc. during my marriage, many that were open for 25 years or more.  All were closed during the divorce. All had stellar payment history, however it appears as though my average age of accounts as reported on Credit Karma, Sesame etc, shows average age calculated by my open accounts only.  (Although I have read that what one reads on these sites is often not correct in terms of calculating score).  So this begs another question.... Is my AAoA on these sites accurate? The FICO info on my bank card and through Discover both cite the too few accounts as the #2 reason affecting my score.  (The #1 reason is derogatory remarks, small medical bills that went to collection during the divorce, and that I paid when I learned of them... the bills and notices were going to my ex). The small step back for a larger step forward was what I was thinking, as I am getting the sense that FICO wants to see more than 2 open lines of credit.  How big of a hit I am going to take in the near term by reducing my AAoA is the question.  If FICO includes my long credit history, then it shouldn't have a significant impact on the scores showing on Discover and my Credit card, even though the Credit Karma/Sesame, will likely show a big hit.  Thanks for any clarification you can supply.

Best,

H 

[Anonymous]

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@Kree wrote:

A good credit score is a long term game.

2 accounts aged 2 years gives you 4 total years, because 2x2=4 and 4/2=2

If you add a third account. suddenly 4/3=1y4m

But if you add a fourth at the same time 4/4=1  Not much lower than 1y4m

A fifth,  0y9m

Now lets look at numbers in 6 years.

2 accounts averaged 8 years

add third  drops to 5y3m

add a fourth drops to 4

add a fifth drops to 3y3m

Huge differences, but if you have the 3 now

In 6 years you have 7y1m

With 4 now  7y

with 5 now 6y8m

So, in summary, the more accounts you open now the less variable your score will be in the future. The question is, can you afford a lower credit score for the next 24 months?  Both from lower AAoA, new credit, and several inquiries.  

As another note, you can have a 850 score with 1 CC.  It is doable, but will take many years.

EDIT: just realized in review I did not show lower variability when adding additional cards in the future after aquiring more cards now.  But I don't have time to do so. If requested I can toss something together later.  Although this really is a spreadsheet problem not the simple mental exercise I wanted to put forth.

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Thanks, Kree.

I guess my new question is what actually is my AAoA? Brutal Body Shots inquired about closed accounts, for which I have a long and strong history.  It is just that the free credit sites which I understand use the Vantage score are not including them in my AAoA.  If indeed they are included by FICO, than opening up a CC or two shouldn't have a significant impact on AAoA, but only hard inquiries and  new credit.  I would like to apply for a mortgage in the next two years or so.... hate renting, but not able to commit to a specific location yet. 

Any insight or opinions most appreciated.

Thanks

H

[Kree]

Old accounts will stay on your report for 7-10 years after closing. And will keep a high AAoA in you have them.  I recommends buying a myfico 3b report, it will list your AAoA for all three CRAs.  I personally use their 39.95 a month service which gets me a report every month.

But this goes back to credit being a long term game.  Once those accounts drop off, your AAoA will go down, and you will have less numbers to work with, so any new credit in the future will have more of an impact. Getting more accounts now, can help build a thicker profile in a few years time. There are other pros/cons of doing so probably.

[Anonymous]

I have a huge gap in my credit history.

My oldest closed accounts are all lumped together about 10 years ago.  They will be falling off my report next spring.

The only things since were a couple baddies (most of which are gone now too)

My credit is entirely new, less than a year old.  So I opened as many accounts as I dared knowing that in six months I am going to be starting over from scratch on oldest account age.  My goal being to have a rock solid AAoA from this point forward, even if it is gonna take it years to age up.

Then I can cull out things I dont need while retaining a sizeable pool of aged accounts in say 2-3 years.

In your situation, I would consider adding 1-2 (maybe 3) accounts in preparation for the same thing.  You will suffer an AAoA hit short term, but your accounts arent so old yet that youll kill your score.

And in 2 years, youll be well back to where you are now, if not higher, and on more stable footing for the next 10+

[SouthJamaica]

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@Anonymous wrote:

After a divorce, I am looking to imporove my credit (698-701).  My only open accounts are a car loan and credit card that I opened once I was single.  As such, my average age of accounts now registers between 2 and 4 years (depending on who is reporting) .  In pulling my FICO from my CC, the number 2 reason for my score is "Too Few Accounts Payed as Agreed".  Both accounts have been paid on time 100% since opening, so I am assuming that "FEW" is the operative problem.  I would open a new aggount, but am wanting to know the relative benefits and liabilities associated with further decreasing my average account age (as well as hard inquiry).  Which has greater impact and for how long?

Thanks,

H

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Yes it's just a reference to your having a small number of accounts.

You can increase your score by paying down your car loan (but not to zero).

And you can increase your score by adding 2 credit cards, and maintaining the 3 accounts with 2 reporting zero balances, and 1 reporting a small balance. You will lose some points for inquiries & new accounts in the short term, but you will get those points back, probably within months. I can't quantify it, but it will probably be an above average hit in your case since your file is "thin". But like I say, you will get those points back.

[SouthJamaica]

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@Anonymous wrote:

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@Anonymous wrote:

So these are the only 2 accounts on your credit report?  Or, are these just the only 2 open accounts you have but you also have closed accounts on your report?  This is important to know.  If you have less than 5 accounts on your credit report, many consider this to be a "thin" file.  In order to thicken it, you'll want to add a few more accounts.  When adding accounts, your score will temporarily drop due to the inquiries, new accounts and age of accounts reductions.  These decreases are generally overcome within 6 months and in 6-12 months your scores will grow greater to what they were prior to adding the accounts.  Think of it as taking a small step back in order to take a large step forward.  As long as you aren't looking to apply for a loan or mortgage within the next year, there's really no harm in adding a couple more revolvers to your profile at this time IMO.

---

Thanks for the reply.  No, these are the only two open accounts on my report.  I had numerous lines of credit, mortgages, etc. during my marriage, many that were open for 25 years or more.  All were closed during the divorce. All had stellar payment history, however it appears as though my average age of accounts as reported on Credit Karma, Sesame etc, shows average age calculated by my open accounts only.  (Although I have read that what one reads on these sites is often not correct in terms of calculating score).  So this begs another question.... Is my AAoA on these sites accurate? The FICO info on my bank card and through Discover both cite the too few accounts as the #2 reason affecting my score.  (The #1 reason is derogatory remarks, small medical bills that went to collection during the divorce, and that I paid when I learned of them... the bills and notices were going to my ex). The small step back for a larger step forward was what I was thinking, as I am getting the sense that FICO wants to see more than 2 open lines of credit.  How big of a hit I am going to take in the near term by reducing my AAoA is the question.  If FICO includes my long credit history, then it shouldn't have a significant impact on the scores showing on Discover and my Credit card, even though the Credit Karma/Sesame, will likely show a big hit.  Thanks for any clarification you can supply.

Best,

H 

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The Credit Karma stuff computes AAoA on the basis of open accounts only.

But fortunately, FICO counts all closed accounts which are in your reports. So since your file is not "thin" after all, you don't need to worry too much about the drop in age.

[Anonymous]

BTW, credit.com is a free tool based on Experian data.  Its dashboard includes a computation of one's AAoA.  It correctly includes both closed and open accounts.  Its scores may be of little help, since they are non-FICO, but it's a nice free tool to assess one's AAoA.

I agree with the other folks that you'll benefit from adding a few more credit cards.  Given that you have exactly one open card, getting two more cards will even give you benefit in the short term.  Certainly it is the right decision for the medium to long term.

Quick question... I am woefully ignorant about how divorces work.  But I am curious to hear (if the OP cares to elaborate) why all of his many open (and old) accounts were closed during the divorce.  Some of these I understand: e.g. a house that the couple lives in is sold, or the OP is removed from credit cards on which he was an authorized user.  And if all of the accounts were like that, this would explain it.  But if the OP had credit cards in his/her own name, especially if they were 20+ years old, it's not clear to me why a divorce would require them to be closed.  Again, it's a subject I know very little about.