FICO stands for Fair Isaac Corporation, which is the business that compiles credit scores for millions of people nationwide. Your FICO credit score is based on five different things, the most important of which is your payment history—in other words, your track record of paying your bills on time. That accounts for 35 percent of your FICO score. But another thing that goes into computing your FICO score is the length of your credit history, which is sometimes known as the average age of your accounts.
Generally speaking, people with a longer credit history have better FICO credit scores. Therefore, if you just opened your very first credit card or just got your first mortgage six months ago, the average age of that account is six months. But if you've had a mortgage for 10 years, that has a 120-month history, so the average age of that account is far greater. Over time, the longer you hold on to credit cards, or the longer that you pay your mortgages, the longer that you pay those auto loans and so on, the higher the average age of your accounts. And increasing the average age of your accounts is generally a positive thing for your FICO credit score.
Unfortunately, some people shoot themselves in the foot when it comes to messing with the age of their accounts—namely by closing out old accounts. When someone closes a credit card they've had for a really long time, they cut off that past payment history, and decrease the average age of their accounts, most often resulting in a lower credit score.
When you finally pay off a credit card or transfer balances from one credit card to another, in most cases it's best not to close out your old account. Nevertheless, a common misconception among consumers is that getting rid of credit cards will improve your FICO credit score. But it usually won't. In fact, closing old accounts could backfire, causing your FICO credit score to drop because you've decreased the average age of your accounts and you've increased the percentage of credit used versus the amount of credit you have available, according to experts at Fair Isaac, the credit scoring company.
Re-Age an Overdue Credit Card to Improve Your Credit
But what if you've had an overdue credit card or an account that has gone past due and you want that negative information wiped off of your credit records? Well, the process of re-aging is how you get a "do over" in the credit card world. Re-aging is the way in which you get a second chance with your creditors if you've slipped up and let an account go past due.
With re-aging, almost like magic, your past-due account gets "re-aged" and presto, all of a sudden that overdue due account gets zapped back to current status. It gets taken out of late payment status in terms of being shown as 30, 60, or 90 days past due, and you get a fresh start on your account. Basically, re-aging provides you with a fresh slate on your credit card history. If you had a credit card for five years, it had a 60-month history. But with re-aging, you've started the clock again as if the card was brand new, with a one month history.
Re-aging doesn't absolve you of your responsibility to pay your debts. But the late fees stop, and your credit file improves because the negative information is erased. And if you can get a company to re-age your account, then those late fees that they might have been charging you or any extra interest you've been paying on those bills can also be eliminated.
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