Credit Card Score / How to Improve Bad Credit? – Philip Tirone

When it comes to your credit score and credit card score, the older the better, meaning the older your credit history, the better credit score you will have.

Though 22 factors determine a credit score, these factors can be grouped into five categories:

1)    Your payment history

2)    The amount of money you owe

3)    The type of credit you have

4)    Credit inquiries

5)    The length of time you have had credit

The age of your credit history—that is, the length of time you have had credit (#5 above)—affects about 15 percent of your credit score. The longer an account has been open, the better credit score you will have. For this reason, closing credit card accounts, especially old accounts, is never a good idea, even if you have more than the ideal number of credit cards. (Read the post, “How Many Credit Cards Should I Have?”)

When determining whether to give you a better credit score based on the age of your credit history, credit-scoring bureaus also consider the average age of your accounts. Let’s say, for instance, that you have the following credit cards:

• Visa – 48 months old
• MasterCard – 72 months old
• American Express – 60 months old

The average age of your accounts, therefore, would be 60 months. (48 months + 72 months + 60 months divided by 3 accounts = 60 months).

Now let’s say you open another credit card. After the account was open for one month, the average age of your accounts would drop to 45.25 months. For this reason, people who need to open credit cards to build their credit score should open all the accounts at once. Some people, worried about credit inquiries, open credit cards in stages.

Let’s take a look at two scenarios. In both scenarios, a person is trying to build a better credit score by open three new credit card accounts. Anna decides to open them in stages. Brianna decides to open them all at once.

Anna’s story: Anna declared bankruptcy in 2007. The following year, she realized she needed to start rebuilding her credit score. Because she knew that credit inquiries count for about 10 percent of a person’s credit score, she decided to open one a year for the following three years.

In 2010, Anna finally has three credit cards:

• A Visa opened in 2008, which is 25 months old.
• A MasterCard opened in 2009, which is 13 months old.
• An American Express opened in 2010, which is 1 month old.

Because credit inquiries remain on a credit report for two years (but only affect a credit score for one year), the inquiry for the Visa is not reflected on her credit score. Though both the MasterCard and American Express are on her report, only the American Express inquiry is included in the formula that determines her credit score.

The average age of her accounts is 13 months.

Brianna’s story: Brianna’s parents were conservative, cash-only people who taught their daughter to live debt-free. But when she submitted an application to rent an apartment in college, she was denied. The landlord explained that on the scale of credit scores, hers fell near the bottom. She learned that no credit was the same as bad credit, so she vowed to learn how to improve her credit score.

Brianna learned that one of the keys to a better credit score is having three to five credit cards. In 2008, she opened three credit cards, all in the same month. Of course, her score at first took a nosedive due to the three credit inquiries that jumped onto her credit report. But by 2010, the inquiries fell off her credit report. At this point, each of the three credit cards were 25 months old. So while the average age of Anna’s accounts is only 13 months, the average age of Brianna’s accounts was also 25 months.

And who had the better credit score? That’s right: Brianna.

One final note about building a better credit score. Be sure to keep your credit card accounts active. If you stop using a credit card, eventually it may become inactive and fall off your credit report. And remember: the older the better!