Average age of credit history

by Admin
Updated: June 29, 2018

How to calculate average age of credit history and the effect of adding new accounts

The age of an individual’s credit history is a significant factor in determining that person’s credit score. The average age is a relatively simple calculation and is often treated as if it were the only measure of the credit history age. However, the implications of adding new accounts is a somewhat more complicated calculation and, when calculating real credit scores, more weight may be given to older or newer accounts.

The calculator below will show the time required to achieve a target value for the average age of a credit history and the effect of adding new accounts.

DescriptionDataNotes
Total accounts:Change total accounts or total years to calculate average age
Total years:
Average age:Accept or overwrite average age
Target age:
New accounts:
Effect on age:years
New age:
Years to target:
Years to wait:

Example

If you have 10 credit accounts with a total age of 85 years, the average age is 8½ years.

If you if you don’t add any new accounts, it will take another 6 months to reach 9.

If you add one new account, the average age will drop by 0.77 years to 7.73 years and it will take 1.27 years (1 year, 4 months) to reach 9.

Alternatively, if you wanted to ensure that adding the new account would not bring the average down below the target age, you would need to wait 1.4 years (1 year, 5 months) before opening the new account.

Math: How to calculate the results

The average age is easy, it is simple the total years divided by the total accounts. Alternatively, calculating back, the total years is the average multiplied by the number of accounts.

When adding new accounts, the total accounts increases but the total years does not change so the average age drops and begins increasing with time again from that point. The new average is:

g = y + t . x + n . x t + n

Where y is the total years, t is the total accounts, n is the number of new accounts and x is the number of years since the new accounts were added. This rearranges to:

x = g (t + n ) - y t + n = g - y t + n

If instead we want to wait x years to build up the average age so that it does not drop below the target value when new accounts are added, the equation is:

g = y + t . x t + n

Which rearranges to:

x = g (t + n ) - y t

Open new accounts now or later?

Comparing the two solutions above we see that the numerator, g(t+n)-y, is the same but the denominator is different: t vs t+n and, since t+n will always be greater than t on its own, we find that it always takes less time to reach the target if new accounts are opened sooner rather than later.

The disadvantage of course, is that we have to live with the value being below the target in the interim.

Additional considerations

Some scoring methods assign a fixed amount of importance to average credit age but it is only one measure and many scores give more weight to older or newer accounts.

An average age of around 10 years is generally considered excellent but some lenders favor at least one very long-standing account (20-30 years).

Although, total accounts is also a standard factor (so calculating total years is trivial), account details are in the credit report so many types of calculation are possible.

Closing recently opened accounts to increase the average age will not work. Closed accounts are included in the calculation for many years after they have been closed except that they no longer contribute as time passes.

Accounts that have been inactive for an extended period of time (usually a year) may be closed by the lender without notice.

Suggestions

If you’re starting out or starting afresh and can take a 9-10 year view, it will make most sense to get more credit accounts sooner.

Concentrate on credit accounts that won’t expire (credit cards are usually the safest).

Don’t close accounts you no longer need. Instead, maintain them by using them at least once a year (preferably once every six months).

Don’t get accounts/cards that require a fee to remain open.

More info

“Credit Age: How Length of Credit History Affects Your Score” at nerdwallet.com.

“How average credit account age affects your FICO score” at creditcards.com.

“Credit History - How Your Credit Age Affects Your Credit Scores” at nav.com.

Internal links

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