Six months plus at zero balance removes card from longevity calculations?

Discussion in 'General Discussion | Credit Cards' started by Counsellor, Jul 6, 2014.  |  Print Topic

  1. Counsellor
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    Counsellor Gold Member

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    I was reading comments to some blog postings the other day and one said something to the effect that carrying a "zero" balance on a credit card for 6 months or more (which I take to mean neither charging anything on that card nor carrying a revolving balance during the six-month period) removes that card from the "average age of accounts" (AAOA) calculus.

    That's the first I've heard of this, and a quick search didn't turn up the same information in other places. Has anyone else heard the same? If so, do you have a good source confirming that "rule"?

    Related question going the other way: Another blogger has stated that canceling a card does not affect your AAOA until the canceled card drops off the credit report (about 7 to 10 years later), and I've read this on other sites as well, but never on an "official" one. This seems exactly contrary to the earlier comment (different blogs, though), since a canceled card would automatically have a zero balance.

    Does anyone know whether that statement is accurate?
     
    Last edited: Jul 6, 2014
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  2. othermike27

    othermike27 Silver Member

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    Well, I mostly only know what I read on these subjects, but I do try to pick reliable sources. From a blog posting on Mint.com
    https://www.mint.com/blog/credit/fico-myths-08302010/
    by a guy who claims to have worked at FICO, here is a relevant Q+A:

    Closing a Card Causes You to Lose the “Age” Benefit of That Account.

    This is incorrect. One of the secondary factors in your FICO score is the average age of the accounts on your credit reports. The older the average, the better for your scores. There’s a myth that closing a credit card account will somehow remove that card from consideration in the average age calculation.


    Here’s the real deal: FICO scoring considers open and closed cards when determining the average age of your accounts. Closing the card doesn’t remove it from your credit reports so it’s still going to be considered.


    John’s Final Thought: Be careful when deciding to close credit card accounts. Re-read myth #2 above for the reason.


    Of course, this leaves open the question of whether a closed account "being considered" is the same as being equally weighted with an open account. If this information is correct, then the answer to your first question is that it is not true that an inactive/zero-balance credit account removes the card from AAOA..

    Like the man said: "Charge!"
     
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  3. lapointdm

    lapointdm Silver Member

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    That other blog about 6 months no balance removing it from the AAOA is complete fantasy.
     
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  4. Counsellor
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    That is what I understood as well. And that's what most of the sites I found said, too. The explanation is that they're interested in how long you've had credit, so to calculate that you go back to when the account was opened, no matter when it was closed, so long as it's included in your credit file (i.e., until it drops off after 7 or 10 years of being closed).

    Good to know, and I guess it's hard to prove a negative (i.e., FICO wouldn't be likely to say something about that specifically). And frankly, it makes no sense, since what this element is about is how far back you've had credit (and clearly if they count closed accounts, a dormant but still open account is even "more valid".)

    I would have rejected the statement, except that when I tried to check on it I did come across this:

    It may be that someone misread the requirement to have had an account reported in the last six months as meaning there needed to be an actual credit transaction reported in the last six months?
     
    Last edited: Jul 6, 2014
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  5. othermike27

    othermike27 Silver Member

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    Yes, I think you're right. Here is the wording from the myFICO site:

    Length of credit history (15%)

    In general, a longer credit history will increase your FICO® Score. However, even people who haven't been using credit long may have a high FICO Score, depending on how the rest of the credit report looks.


    Your FICO Score takes into account:

    • how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts
    • how long specific credit accounts have been established
    • how long it has been since you used certain accounts
    Notice how FICO leaves some things vague. They don't say which specific accounts in the second point, or whether those accounts are the same as the certain accounts in the third point. In fact, they have a whole section on this page

    http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

    that stresses that the importance of the five categories varies by person. This point is usually missed by bloggers who are too anxious to start writing stuff when they should be spending more time reading and understanding so they can pass along accurate info to their readers.
     
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  6. jbcarioca
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    jbcarioca Gold Member

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    The problem with an "official" view is that one cannot exist, even if FICO itself makes an official pronouncement. Why?
    The term 'FICO score' in the contact of consumer credit is now a generic term, just like 'kleenex'. FICO does create and sell FICO scores, just as Kimberly-Clark makes and sells Kleenex. FICO sells lots of different scores that are constructed differently.

    For the specific question herts the answer is not 100%, but there is a general practice. but not a universal one:

    Most credit card issuers consider 'active' accounts in calculations of average age and credit line utilisation, among other things. They may or may not use FICO to build models for them. All issuers purchase generic models through their credit bureau data providers that allow them to make industry-standard portfolio evaluation models, but these are rarely used for credit decisions by major issuers.

    Most major issuers consider "active accounts' in consumer reviews and define active accounts as ones with a "debit active" status within the last 180 days and/or six cycles.

    Some consider "transaction active" or similar words which usually means "statement active" but that works only for internal accounts (you may ntice that examples such as American Express and Chase tend to show long account history, so you might see accounts inactive or closed for decades still viewable. If your issuer does that, you'll note, they will be using data which has been dropped from credit bureau reports. Thus a delinquency or unpaid obligation from decades ago can damage your credit even if it is no longer viewable on a credit report. FICO will not even be able to view such information, primarily because FICO will not provide internal models for these institutions as a vernal rule even through they might provide propensity models for use in such tools as Falcon and or Triad.
    http://subscribe.fico.com/Is_It_Fra...DC2kAMwHOnV4qlPTBhYgfrtfLYIZd8qgwDOXCSH_D_BwE
    http://www.fico.com/en/products/fico-triad-customer-manager/

    I apologize for so much detail. People who have a superficial understanding often attempt to give simplistic answer for questions such as the one posed here. There are no simple answers. YMMV.

    Still, you can assume safely that accounts that you close yourself and accounts still technically open but unused for more than six months will not make any material impact one way or another to any credit decisioning and/or new account approval. Due to processing costs and capital allocation rules now entering for the industry you will find that open but unused accounts will gradually cease having now cards reissued and will be closed due to inactivity. That has been gradually increasing for several years, but is accelerating now. Nothing happens to your account longevity or credit availability calculations for anybody other than the original issuer as these things happen because most such accounts simply disappear from credit reporting.

    Not all of them disappear...some issuers and other lenders are not terribly diligent or competent in purging their reporting processes. For those you may have a car loan or lease or a mortgage still reporting that has been liquidated years ago. Such things are not included in any competent FICO or other scoring process, but mistakes happen so you're better off reviewing your own reports to make certain you request purging of such accounts yourself. If you have a common name or other identifiers it is also not rare to have an incorrect report showing accounts in good standing that are not yours. Those should be purged too.

    Above all, if anybody ever tells you that there are definitive rules governing either average longevity of account calculations or anything else you can safely disregard anything else they tell you. That only means that wherever they have worked they are unable to grasp the realities of these calculations.

    Finally, you will be justified in viewing my own comments with a jaundiced eye. This is a public bulletin board. You have no way to know whether I actually know what I am posting about or not. As a Meryl Streep character once said when questions by a Philip Seymour Hoffman character about her conclusions in the absence of factual evidence "...but I have my certainty". Beware of certainty!
     
  7. Counsellor
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    Thanks for the information and the explanation. Very helpful.

    As to credibility, folks from Brazil are very credible right now, but we'll see what happens tomorrow night. (And my sympathy goes out to Mr. Neymar -- that was a very bad foul IMHO.)
     
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  8. jbcarioca
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    jbcarioca Gold Member

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    Thanks for the vote of confidence but people here are thinking "Flamengo" might just win again. No accident that Germany chose to emulate our "winningest" team.

    BTW, I am also a US citizen and most of my working career has been devoted to, among other things, financial institution risk management, including developing and implementing decision management processes and tools for almost all major US issuers and also all three major card brands. My comments are based on doing that work not only in the US but also most major card-issuing countries. Oddly, I have never done such work in Brazil.
     
  9. Counsellor
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    That link you included is really interesting. It almost looks as though this "FICO’s Collaborative Profiles" would be personally-based.

    I wonder if they're looking for manufactured spend (MS) and the like as well as out-and-out fraud. If they do actually cross-link to the various credit reports on a particular individual, they'd have the credit card info from various issuers as well as the spend pattern. So even if they weren't actively looking for MS, they would have the information needed to detect it, and my experience has been that once information can be obtained, someone will find a way to obtain and use (or abuse) it.

    I sometimes think with these high-performance computers, data mining goes a bit too far. Not so much with respect to MS, but more the equivalent of cyber-stalking. One could pretty much map out a person's daily habits, interests, proclivities, and the like.

    But that's a different issue for a different thread.
     
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  10. jbcarioca
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    jbcarioca Gold Member

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    It may be a different thread but we may as well take a modest stab at it here. These two tools, Triad and Falcon, are very different, but both use data from the lenders own portfolio to generate the algorithms used, and large issuers generally have different algorithms for each major portfolio. Falcon is used to assess transactions fraud and integrates with the transaction authorisations system on a near-real-time basis (basically it is one transaction behind). Triad is used in Collections and new card approval as well as, often, for credit lien assignment and increase/decrease. There are many other tools around, but I showed these because they are from FICO, even though many argue that neither is state-of-the-art just as FICO itself can be argued to be out of date.

    These tools use the models produced from portfolio analysis to then assess existing and/or new customer decisions. There is nothing really individual in any of them, only correlations. Thus, the more refined and up-to-date the issuer, the more other techniques are used to make these decisions, the more old fashioned, the more these tools dominate the process. With only a handful of exceptions the advanced tools actually make the decisions and "analysts" present the data to the customer in a call centre and are generally without any knowledge of the infrastructure, but with certain decision rules that they can follow to make exceptions. One reason for so much misinformation is that most of the analysts want to see themselves as very knowledgable, which suits the customers and management too. Further, management of new account acquisition or agent relations or collections or whatever also want to see themselves as knowledgable and in control. Truly, it is highly unusual that anyone outside the realm of model construction and deployment actually knows what is in them, and even those people ordinarily know only the ones on which they work. There is sound reason for that- reducing internal fraud, among other things. Were people to know exactly what is in the models they could then manipulate the results.

    With no question at all it is factual that anybody who says they know what is in one of these models is either lying or mistaken, unless the person is a fraudster in which case it might be true now but will not be once said person is caught and dealt with in legal or extra-legal processes.Most of the time the people claiming to know have never actually done any of this, which can be easily deduced by asking a couple of undergraduate statistics questions or on credit bureau reporting requirement detail.
     
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