The length of time you have had credit—which includes the age of credit cards on your credit report—is a big factor in determining your credit score, accounting for 15 percent of your credit score. The older your accounts, the better your score.
This component considers not only the age of individual credit cards, but also the average age of credit cards on your credit report. This means that each time you open a new account, the average age is lowered. Because the credit-scoring bureaus respond more favorably to older accounts, your credit score might be lowered every time you open a new account. (And this is a double whammy because opening new credit cards also requires inquiries into your credit report, which also lower your score.)
It works like this. Let’s say you have four credit cards, and each of them have been opened for five years.
Credit Card #1: 60 months old
+
Credit Card #2: 60 months old
+
Credit Card #3: 60 months old
+
Credit Card #4: 60 months old
= average age of 60 months
Obviously, the average age of credit cards on your credit report is 60 months, or five years. But what happens if you add another credit card to the mix by opening a new credit card?
Credit Card #1: 60 months old
+
Credit Card #2: 60 months old
+
Credit Card #3: 60 months old
+
Credit Card #4: 60 months old
+
CREDIT CARD #5: 1 MONTH OLD
= average age of 48.2 months
The average age of credit cards on your credit report is now 48.2 months, or a little more than four years. By opening just one credit card, the age of credit cards on your credit report dropped by one whole year!
For this reason, if you need to open some credit cards to reach the ideal number of three to five (see “How Many Credit Cards Should I Have?”) we suggest that you open them all at once, unless you are preparing for a large purchase such as a home or car. Though opening several accounts at once might hurt your score temporarily (read the post called “New Credit Cards”), your score will be better off in the long run because the age of credit cards on your account will not continue to drop in tandem with new credit cards.
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