Most people are grappling with the question of what is a good average credit age of accounts. Well, there is no absolute answer to this question.
Different sites provide varying information, with some saying you need to have credit accounts that have lasted for over seven years to achieve the ideal credit age. But, in actuality, a good average age differs with different scoring companies and lenders.
According to MyFICO.com, the credit age factor counts up to 15% of your credit score. Typically, that requires having at least one credit account that has lasted for over six months for the scoring model to have enough information to generate a credit FICO score.
What is the Age of Your Credit?
This is the length of time you have been using credit. According to FICO Credit scoring models, this length is determined by your oldest and newest account age plus the age of the average accounts.
Since potential lenders can see your pattern by looking at your credit history, having a longer history is essential when applying for a loan. Also, with a long history, lenders can determine the level of risk they would take on lending money to you. Therefore, longer history potentially translates to higher credit scores and better terms like higher interest rates.
Why is the Age of Credit Important?
Lenders review your credit reports to establish your creditworthiness. Having longer history shows that you have greater experience using loans and a shorter one indicates less experience.
A consumer with a short credit history has little information to prove they can make on-time payments. The longer your credit history is, the more accurate the lender will determine the risk level they take when offering you loan products and services.
What Other Factors Affect Credit Scores?
The other factors that make up credit scores include payment history, credit utilization ratio, a mix of credit, and new accounts or how much you’ve much credit you’ve applied for recently.
Your utilization ratio and payment history have a greater impact on your scores than your credit account’s age. Therefore, if your credit report shows you have a high utilization ratio and have late and missed payments, having a long credit history won’t be enough to make up for that.
On the other hand, if you have a long history and your report shows timely bill payments and a low utilization ratio, it indicates you’re a responsible borrower, and the risk of lending to you is low. That boosts your chances of getting approved for loan money and revolving cards.
How is the Length Of Credit History Calculated?
According to MyFico.com, your credit history length is categorized into three parts:
- The length of time each of your open accounts has lasted
- How long specific types of accounts have been open – your credit mix can either be revolving like credit cards or installments like mortgage, auto loan, student loans, or personal loans
- The length of time you’ve used your accounts – for instance, if you haven’t used your credit card in the last 7 years, it won’t help your credit score.
Also, FICO uses another formula called Average Age of Accounts to calculate the length of your credit history. This formula uses the age of your oldest and newest accounts, both closed and open ones, divided by their total number.
How Does Closing Old Accounts Affect your Credit Score?
Keeping your accounts open and active also boosts credit scores. It demonstrates to lenders your capability to maintain credit and reveals your patterns as a borrower over time. Even if you pay your credit cards off and don’t intend to use them again, don’t close them. This will have a negative impact on your utilization ratio.
Typically you get a good credit score if you’re using less of your available credit limit. So closing your credit account will reduce the available balance and can hurt the utilization ratio. Closing an old account because you’ve opened a new one may also reduce the length of your credit history. That’s because replacing an old account with a new credit account lowers the age.