How Is Average Credit Age Calculated?

Average credit age, also known as the average age of accounts (AAOA), represents the average length of time your credit accounts have been open. This metric provides a snapshot of your history as a borrower, indicating how long you have been managing various forms of credit. It serves as one of several factors that financial institutions consider when evaluating an individual’s financial reliability. Understanding this component is important for comprehending how lenders view your credit information.

Accounts Used in the Calculation

The calculation of average credit age incorporates various types of credit accounts reported to the major credit bureaus. These typically include revolving accounts, such as credit cards, and installment loans, like auto loans, mortgages, and student loans. The “age” of each account begins from its opening date, reflecting the total duration it has been active.

Both open and closed accounts generally factor into the average age calculation, particularly for FICO scoring models, as long as they remain on your credit report. Accounts can remain on your credit report for up to 10 years, or seven years for negative information.

Authorized user accounts can also influence average credit age, though their inclusion and impact can vary depending on the specific credit scoring model and the card issuer’s reporting practices. However, certain items like collection accounts and judgments are typically excluded from this specific calculation.

Determining the Average Age

The average age of credit is determined by a straightforward mathematical process. This calculation involves summing the ages of all relevant credit accounts and then dividing that total by the number of those accounts. For instance, if an individual has a credit card opened 10 years ago and a personal loan opened 5 years ago, the combined age is 15 years. Dividing this by two accounts yields an average credit age of 7.5 years.

This method provides a weighted average of your credit relationships over time. Each account contributes its full duration from its opening date. The result is a single figure that reflects the overall maturity of your credit file, helping lenders gauge the consistency and duration of an individual’s credit management.

Influence on Creditworthiness

Average credit age plays a role in credit scoring models, such as those developed by FICO and VantageScore. It forms a component of the “length of credit history” category, which is a significant factor in determining an individual’s overall credit score. This category accounts for approximately 15% of a FICO score and about 20% to 21% of a VantageScore.

A longer average credit age generally contributes positively to credit scores. This is because a more extensive history of managing credit accounts provides lenders with more data to assess an individual’s repayment behavior and financial stability over time. While other elements like payment history and credit utilization typically hold more weight, the duration of an individual’s credit relationships offers valuable insight into their experience with credit.