Last month, Mint was kind enough to post a call for credit questions on their Facebook page, here. And as usual, Minters didn’t disappoint, leaving me with enough great credit-related questions to last me until the summer.
I’m going to try and tackle two per week and here is the first installment:
Question #1: How old do your accounts have to be in order to have enough of a credit history?
There is a great deal of confusion when it comes to the topic of the age of your credit accounts. One has to do with the issue of the age of your credit report and the age of your credit accounts, and their influence on your credit scores. I’ll try my best to clear up the confusion across the board.
Credit file age: The two common “age” measurements in your FICO credit score are the age of your credit report and the average age of the accounts on your credit report.
The date opened of the oldest account on your credit report (open, closed, active, or inactive) will set the age of your credit report.
The average age of your accounts is determined by taking the average age of ALL accounts on your credit report whether they’re open, closed, active or inactive.
A common myth is that closed accounts do not count in the age metrics. That’s not true. Not only do they count toward age metrics, but they continue to age even after they’ve been closed.
How long before an account “counts” in your score: Another common myth is that accounts have to be on your credit file for a certain amount of time before they’ll be considered by scoring systems.
That’s not true. The moment an account hits your credit reports it is fair game and is considered in your scores.
The only exception is if you only have one account on your credit reports and it is less than 6 months old. In that case, your credit file will not qualify for a score because you’ve got to have at least 6 months of history in order for your credit file to be scoreable.
But, as long as the file is scoreable, EVERY account is considered.
How old does my file have to be to have a great score: The answer to this question is, “not very old at all.”
This is out of your control. If you’re young and don’t have a long history of managing credit, then your age metrics (above) aren’t going to be perfect. But that’s ok because the age metrics only count for 15% of the points in your score.
As time passes, your file will get older organically and you’ll gain more points in the age category. You can have a very impressive score even with only a few years under your belt.
Question #2: Do medical bills hurt your credit score?
It is rare that your doctor’s office will report your on-time payments to the credit reporting agencies, as do most lenders. But, it does happen. And, as long as your doctor’s office is reporting that you’re making on-time payments then that’s definitely not hurting your credit scores.
Having said that, most of the time. when a medical bill shows up on a credit report, it’s being reported by a collection agency because you haven’t paid the bill or your insurance company hasn’t paid the bill. When a medical collection hits your credit reports it definitely can hurt your credit scores.
The degree of the negative hit is going to depend on the rest of your history. If you’ve got a perfectly clean credit report and all of a sudden a medical collection is added, then that’s going to have a very large downward impact.
If, however, you’ve already got negative items on your credit reports, then adding yet another to the mix isn’t going to have the same kind of negative impact because your scores are already being driven down by the presence of the other negative items.
Negative items do not have independent value, which means having 10 negative items isn’t necessarily worse than having 9, or 8, or 7. I often tell people that you can’t blame collection #16 for your poor credit scores and ignore collections #1-15.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.