Hey everyone. I've been giving thought to "length of credit history" recently, specifically how AoOA is measured/considered. As we all know a closed account is expected to typically stick around on a credit report for roughly 10 years. We often give the solid recommendation to acquire an open ended account (revolver) early on in one's credit journey and to keep that card active/open indefinitely as to continue to grow AoO(R)A. What does kind of bother me a bit that I'm trying to wrap my head around and work out is the elimination of credit history depth due to account closures. I'm assuming that there's some sort of data out there that suggests that if someone keeps their first open ended account longer (20 years, 30 years, 40 years, etc) it somehow makes them a slightly lesser risk of default, but I don't know that it really feels accurate to me. I'm curious to hear opinions on this. To sort of illustrate my thought process, let's look at 2 examples. Cornelius at 20 years of age opens 1 bank card and keeps it open forever. He opens no other revolvers throughout his life. At the age of 70 he has an AoOA/AoORA/AAoRA of 50 years. Rupert at 20 years of age opens 1 bank card and keeps it open for 7 years. Just prior to closing his first card he opens a new revolver to replace it. When the new revolver reports, he closes the original card. Rupert repeats this process throughout his life, every 7 years opening 1 new card and then closing his other card that's 7 years old. At the age of 70, he would have opened his 8th card ever the previous year. His AoOA/AoORA would be ~15 years from the card he opened at 55 years old and closed at 62 years old and his AAoRA would be ~8 years with the 3 revolvers (1 open, 2 closed) on his CR. At age 72 Rupert's AoOA/AoORA would fall to ~10 years with his AAoRA landing around 6.5 years. Cornelius of course at 72 would have an AoOA/AoORA/AAoRA of 52 years. While dramatically different in their handling of revolvers, let's assume for the sake of this discussion that both handled installment loans identically throughout their lives... maybe opening/closing one every 3-5 years on average so maybe they each at 70 years of age have 1 open installment loan and 2-3 closed installment loans on their CR. I don't think this is really relevant to this conversation on the subject of their revolvers, but I want it to be a constant variable between the two profiles. I guess what I'm struggling with is whether or not Cornelius really has "better" depth of credit history with that AoOA/AoORA/AAoRA of 50 years relative to Rupert's file. Both have for all intents and purposes managed 1 revolver at a time for 50 years. What do you all think about this topic?
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AoOA theory/discussion

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2 years ago
Tue May 03, 2022 11:39 am
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BrutalBodyShots
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Hey everyone. I've been giving thought to "length of credit history" recently, specifically how AoOA is measured/considered. As we all know a closed account is expected to typically stick around on a credit report for roughly 10 years. We often give the solid recommendation to acquire an open ended account (revolver) early on in one's credit journey and to keep that card active/open indefinitely as to continue to grow AoO(R)A.

What does kind of bother me a bit that I'm trying to wrap my head around and work out is the elimination of credit history depth due to account closures. I'm assuming that there's some sort of data out there that suggests that if someone keeps their first open ended account longer (20 years, 30 years, 40 years, etc) it somehow makes them a slightly lesser risk of default, but I don't know that it really feels accurate to me. I'm curious to hear opinions on this.

To sort of illustrate my thought process, let's look at 2 examples.

Cornelius at 20 years of age opens 1 bank card and keeps it open forever. He opens no other revolvers throughout his life. At the age of 70 he has an AoOA/AoORA/AAoRA of 50 years.

Rupert at 20 years of age opens 1 bank card and keeps it open for 7 years. Just prior to closing his first card he opens a new revolver to replace it. When the new revolver reports, he closes the original card. Rupert repeats this process throughout his life, every 7 years opening 1 new card and then closing his other card that's 7 years old. At the age of 70, he would have opened his 8th card ever the previous year. His AoOA/AoORA would be ~15 years from the card he opened at 55 years old and closed at 62 years old and his AAoRA would be ~8 years with the 3 revolvers (1 open, 2 closed) on his CR.

At age 72 Rupert's AoOA/AoORA would fall to ~10 years with his AAoRA landing around 6.5 years. Cornelius of course at 72 would have an AoOA/AoORA/AAoRA of 52 years.

While dramatically different in their handling of revolvers, let's assume for the sake of this discussion that both handled installment loans identically throughout their lives... maybe opening/closing one every 3-5 years on average so maybe they each at 70 years of age have 1 open installment loan and 2-3 closed installment loans on their CR. I don't think this is really relevant to this conversation on the subject of their revolvers, but I want it to be a constant variable between the two profiles.

I guess what I'm struggling with is whether or not Cornelius really has "better" depth of credit history with that AoOA/AoORA/AAoRA of 50 years relative to Rupert's file. Both have for all intents and purposes managed 1 revolver at a time for 50 years. What do you all think about this topic?
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Re: AoOA theory/discussion

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2 years ago
Tue May 03, 2022 1:15 pm
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ptatohed
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I'm certainly no pro at credit ratings but the one thing that comes to mind is a creditor today looking at Cornelius' history can safely make the assumption that he never burned his revolver creditor. So there might be some extra value in that? Rupert, while he may very well have never burned one of his creditors, that can't be known for sure. Maybe he burned the first one or several early on but the derogatory reporting has fallen off his report. Just an :idea: . :)
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Re: AoOA theory/discussion

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2 years ago
Tue May 03, 2022 1:54 pm
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BrutalBodyShots
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I think that's a fair point.

I do think related counter arguments could be made however pointing to the upside of having more accounts. Cornelius while showing incredible longevity with that single account still has only shown the ability to manage 1 revolving account.

I suppose the term "length of credit history" is what irks me a bit. In this example, both Cornelius and Rupert have the same actual length of credit history in terms of number of years with revolving credit, but based on their credit reports that's definitely not the case with it appearing that Cornelius has significantly more. I guess I just feel that the term is a bit misleading.
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Re: AoOA theory/discussion

4 of 11
2 years ago
Tue May 03, 2022 3:26 pm
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ptatohed
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BrutalBodyShots wrote: Tue May 03, 2022 1:54 pm I think that's a fair point. I do think related counter arguments could be made however pointing to the upside of having more accounts. Cornelius while showing incredible longevity with that single account still has only shown the ability to manage 1 revolving account. I suppose the term "length of credit history" is what irks me a bit. In this example, both Cornelius and Rupert have the same actual length of credit history in terms of number of years with revolving credit, but based on their credit reports that's definitely not the case with it appearing that Cornelius has significantly more. I guess I just feel that the term is a bit misleading.
I see what you are saying. But I don't think they are competing concepts. I think both measurements can be (and are) quantified. I think a consumer can have an overall total length of credit history (time since first credit was established) as one metric, and the age of any given credit account (account history) as another metric.
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Re: AoOA theory/discussion

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2 years ago
Tue May 03, 2022 6:24 pm
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BrutalBodyShots
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Right, but overall length of credit history isn't actual unless one keeps their first account open indefinitely.

Rupert's length of credit history would be limited to 10-15 years at any given moment, suggestive in his early 70's that he's only managed credit since he was around 60 years of age.
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Re: AoOA theory/discussion

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2 years ago
Mon May 16, 2022 6:31 pm
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The problem here is depth of file has nothing to do with age.

Depth of file refers to the quantity and diversity of accounts on the report, not age.

When Fico refers to depth of file, they’re talking about number and type of accounts.

Nevertheless, that’s why how a person manages their credit matters. Algorithms are not meant to be perfect but to be predictive and they can only predict from the data they have. If one of the two people did not keep accounts on their credit report or have enough, that is to their detriment.

Age helps but so does number of accounts & number of bankcards & type of accounts.
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Re: AoOA theory/discussion

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2 years ago
Mon May 16, 2022 6:50 pm
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Birdman
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I do believe there could be sub-binning based on oldest account limiting the maximum contribution from the length of history category. quite honestly I tend to think it might be based on oldest revolver more than oldest account specifically. I would expect this on mature Scorecards.
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Re: AoOA theory/discussion

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Mon May 16, 2022 9:19 pm
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BrutalBodyShots
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Birdman wrote: Mon May 16, 2022 6:31 pm The problem here is depth of file has nothing to do with age. Depth of file refers to the quantity and diversity of accounts on the report, not age.
Depth was a poor choice of word, as I wasn't talking about file thickness at all. In both examples both Cornelius and Rupert would have thick files, so that's not a consideration here with respect to my oldest account point. I simply don't see how having just the 1 revolver (as opposed to say 6-8) over the course of 50 years is "better" from a risk assessment perspective / likelihood of default.
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Re: AoOA theory/discussion

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2 years ago
Mon May 16, 2022 9:27 pm
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Birdman
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BrutalBodyShots wrote: Mon May 16, 2022 9:19 pm
Birdman wrote: Mon May 16, 2022 6:31 pm The problem here is depth of file has nothing to do with age. Depth of file refers to the quantity and diversity of accounts on the report, not age.
Depth was a poor choice of word, as I wasn't talking about file thickness at all. In both examples both Cornelius and Rupert would have thick files, so that's not a consideration here with respect to my oldest account point. I simply don't see how having just the 1 revolver (as opposed to say 6-8) over the course of 50 years is "better" from a risk assessment perspective / likelihood of default.
I’m definitely not saying it’s better. The one with only one revolver is going to be losing points for only having one, Plus the lack of payment history across different revolvers. The guy that still has two closed ones on his file will have more diverse history and more payment history. True, creditworthiness is irrelevant and maybe unmeasurable, but the algorithm have to go from the data it has on the report. Three BCs even if two are closed is better than one.
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Re: AoOA theory/discussion

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2 years ago
Mon May 16, 2022 10:37 pm
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BrutalBodyShots
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Last edited by Birdman on Mon May 16, 2022 11:11 pm, edited 1 time in total.
Reason: Fixed the boo-boo in my quote
Birdman wrote: Mon May 16, 2022 9:27 pm I’m definitely not saying it’s better. The one with only one revolver is going to be losing points for only having one, Plus the lack of payment history across different revolvers. The guy that still has two closed ones on his file will have more diverse history and more payment history. True, creditworthiness is irrelevant and maybe unmeasurable, but the algorithm have to go from the data it has on the report. Three BCs even if two are closed is better than one.
Agreed that the additional 2 cards if closed would still be better in many ways, but in terms of oldest revolver it's obviously worse if you're talking an AoORA of (say) 10-15 years verses an AoORA of 50 years.
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Re: AoOA theory/discussion

11 of 11
2 years ago
Mon May 16, 2022 11:19 pm
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Birdman
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Once you hit 20-25 years, I don’t think there’s much of a difference; there might not be after 15? But I don’t think 50 years versus 15 years would yield much difference in that situation because average age would be maxed out as well anyway. So I don’t think there would be a big difference between 80 and 15, especially if other factors were optimized.

Stated differently, I think there is a maximum interval and to enter it I think 15-25 years is more than sufficient.
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