Is Average Age of Account calculated on OPEN or ALL accounts?

[AndroAsc]

Does anyone know about the details of how Average Age of Account (one of the major important components of the FICO score) is calculated?

 

Suppose I have the following accounts:

1) Card 1: Opened Jan 2010. Closed Jan 2013

2) Card 2: Opened Jan 2011

3) Card 3: Opened Jan 2012

 

Is my Average Age of Account the average of all accounts (including closed ones), or just open accounts? If it's the former it will be (3.5 + 2.5 + 1.5) / 3 = 2.5 yrs. If it's the latter it will be (2.5 + 1.5) / 2 = 2.0 yrs. Does anyone know which formula is used in FICO score calculations?

Edited June 15, 2013 by AndroAsc

[jak2136]

AAOA includes closed accounts.

[crabu2]

AAOA includes closed accounts.

 

How are closed accounts used? Do they look at the open to closed time period or do they just consider the date of open, until it drops off the report?

[mendelssohn]

 

 

AAOA includes closed accounts.

How are closed accounts used? Do they look at the open to closed time period or do they just consider the date of open, until it drops off the report?

They continue to add age until they fall off the report. For example, an account open for only 1 year and closed 5 years ago counts as 6 years.

[BDK]

Both, open separately and combined.

[virtualtreasure]

Both, open separately and combined.

 

Yeah, both:

A. opened

B. opened and closed

[crabu2]

 

Both, open separately and combined.

 

Yeah, both:

A. opened

B. opened and closed

 

Ok.. then how is it calculated? Is group A weighted heavier or something? Because I don't under stand how they're doing it if they take closed accounts and keep adding years on it, till they drop off, if they are doing open and closed... Hope that makes sense.

[Occam]

The short answer is, open accounts are weighed more heavily because they are counted both ways.

 

But in most scoring models B is probably more important than A. Unfortunately, nobody outside the NSA knows exactly how all the scoring models work because they are proprietary.

 

I'm pretty sure it's almost never to your advantage to try increasing A by closing an account though. IOW, you should never close one without a very good reason (such as an AF).

[crabu2]

The short answer is, open accounts are weighed more heavily because they are counted both ways.

 

But in most scoring models B is probably more important than A. Unfortunately, nobody outside the NSA knows exactly how all the scoring models work because they are proprietary.

 

I'm pretty sure it's almost never to your advantage to try increasing A by closing an account though. IOW, you should never close one without a very good reason (such as an AF).

I'm not talking scoring model... I'm talking how it's calculated for AAOA.... I can understand if all, tradelines are based on open date for aging purposes, but if closed accounts are too, how can they be counted by just open date, as mendelssohn says, but then be counted again based on open and closed date? What ever the formula is, has to be simple, but counting closed accounts twice, just doesn't compute...

[Occam]

Closed accounts are counted once, from date of opening, along with open accounts. AFAIK date of closing is not taken into account (except after 10 years, when the tradeline is dropped - another reason never to close accounts). AAOA is simply today's date - opening date, averaged over all the accounts showing on your report. The length of time a closed account was actually open does not matter for this calculation. This is the AAOA "B" above.

 

AAOOA ("A" above) is the same, but with only open accounts averaged.

 

Closing dates can matter on manual review though... a bunch of accounts opened then immediately closed will look horrible to an underwriter. It's best to let all accounts report for a full 24 months before closing, even rebuilders with an AF.

 

Some other ages count for scoring too:

Age of oldest account

Age of newest account

Percentage of accounts < 2 years old (I think <15% is best, but I can't remember the reference).

... there are probably more.

[hrguy]

Closed accounts are counted once, from date of opening, along with open accounts. AFAIK date of closing is not taken into account (except after 10 years, when the tradeline is dropped - another reason never to close accounts). AAOA is simply today's date - opening date, averaged over all the accounts showing on your report. The length of time a closed account was actually open does not matter for this calculation. This is the AAOA "B" above.

 

AAOOA ("A" above) is the same, but with only open accounts averaged.

 

Closing dates can matter on manual review though... a bunch of accounts opened then immediately closed will look horrible to an underwriter. It's best to let all accounts report for a full 24 months before closing, even rebuilders with an AF.

 

Some other ages count for scoring too:

Age of oldest account

Age of newest account

Percentage of accounts < 2 years old (I think <15% is best, but I can't remember the reference).

... there are probably more.

I caught this just in the nick of time - I was closing both my secured cards next month @ their 12 month anniversary

[Chupacabras]

I closed my second credit card after around 9 months and it didn't hurt me one whit. Not sure the 24 month thing holds true so long as you don't make a habit of it.

[BDK]

Closed accounts are counted once, from date of opening, along with open accounts. AFAIK date of closing is not taken into account (except after 10 years, when the tradeline is dropped - another reason never to close accounts). AAOA is simply today's date - opening date, averaged over all the accounts showing on your report. The length of time a closed account was actually open does not matter for this calculation. This is the AAOA "B" above.

 

AAOOA ("A" above) is the same, but with only open accounts averaged.

 

Closing dates can matter on manual review though... a bunch of accounts opened then immediately closed will look horrible to an underwriter. It's best to let all accounts report for a full 24 months before closing, even rebuilders with an AF.

 

Some other ages count for scoring too:

Age of oldest account

Age of newest account

Percentage of accounts < 2 years old (I think <15% is best, but I can't remember the reference).

... there are probably more.

Great explanation, I think the best I've ever read!

[Occam]

Thanks BDK!