Follow these golden rules for credit in your golden years, and you'll get the best insurance and loan rates. You'll also be ready to deal with an unexpected expense.
Most seniors probably don’t consider building and maintaining credit a top financial issue. After all, the home and car are paid off and everything else is contained within a careful budget, right?
Not exactly. While that may have been the norm for many retirees in the past, it is changing with this generation of seniors.
In real terms, debt in the hands of Americans ages 50 to 80 increased by 59 percent between 2003 and 2015, according to a report published by the Federal Reserve Bank of New York. During this period, per capita debt at age 65 grew by 48 percent, while it declined 12 percent for 30-year-olds. The senior borrowers had 47 percent more home-secured loans (an increase of $11,191 per capita), 29 percent more auto loan debt ($1,102 up, per capita) and 886 percent more student loan debt ($857 increase, per capita) over this period.
Since borrowing is a more common part of the financial picture for older Americans, keeping a good credit score is also more essential. Not only does it make borrowing more affordable, in the event of unexpected expenses, but credit information also is factored into insurance premiums.
So, even for those seniors whose finances are on a very even keel, it’s worth observing a few golden rules for maintaining good credit in the golden years.
Everyone should have a credit card
Seniors who are managing well on Social Security plus their retirement plans might be tempted to go cash-only. Bad idea, warns credit expert Curtis Arnold.
“If they stop using credit cold turkey, their credit score is likely to be adversely affected,” says Arnold, of CardRatings.com.
The trick is to use that credit card, but pay off the full balance each month. That way you’re charging only what you can actually afford, and you won’t accumulate a larger balance from month to month, which can be detrimental to your credit score.
On that subject: Do you even have a credit score? Consumer advocate Beverly Harzog regularly hears from divorced or widowed senior women whose husbands handled all the finances. Never having signed for loans and never having had credit cards in their own names can make them invisible to the big three credit bureaus — and give them little access to loans.
“You don’t build credit as a married couple. Everyone should have a credit card in their own name to build credit themselves,” says Harzog, author of “Confessions of a Credit Card Junkie: Everything You Need to Know to Avoid the Mistakes I Made.”
Sometimes your status as “authorized user” on a spouse’s card does get reported to the credit bureaus. Find out for sure by requesting a free copy of your credit report.
If it turns out you don’t have credit in your own name, apply for a card right away. More and more companies are providing credit to people without high scores, Arnold said. Just make sure to choose a card that reports to the three main credit bureaus — Experian, TransUnion and Equifax.
Handling credit in ‘gray divorce’
What if both partners have decent credit scores when they decide to part ways later in life? “Gray divorce” is becoming more common, according to personal finance expert Liz Weston, so it’s essential to split credit accounts when you split with a spouse.
One of Weston’s readers checked his credit score and found that his soon-to-be-ex-wife had stopped paying on a joint account. He immediately paid it off, but the damage was done: His credit score was in the crapper.
“It’s so important to separate financial accounts when you’re separating from a spouse,” Weston says.
For more details on handling money matters in the event of divorce, read: “10 Financial Moves That Keep You Sane During a Divorce.”
Use best credit practices
A few more tips from the pros:
- Guard your card. Does a cleaning service or personal care attendant drop by regularly? “Be sure to physically protect your cards,” says Ellen Cannon, editorial director of financial services sites for QuinStreet. Lock your file cabinets, don’t leave a wallet/purse lying around in plain view, and don’t let a handyman roam around the house unattended.
- Don’t co-sign. Yes, your grandson is having a hard time building credit as an unemployed 22-year-old. Welcome to adulthood, where things don’t always go the way you’d hoped. Do not put your finances at risk by co-signing. Instead, point him toward “6 Simple Steps for Newbies to Establish Stellar Credit.”
- Be vigilant for ID theft. According to the Federal Trade Commission, 36 percent of identity theft victims are over the age of 50. Monitor your credit report for accuracy, lest scammers wreck your good name (and your credit score). If you find a problem, the “Identity Theft” page on the FTC website offers step-by-step instructions on how to fix things.
- Don’t overdo it. Spending almost to a card’s limit is a bad idea, even if you do pay it off each month. That’s because credit bureaus may see only the balance on the day it’s reported, as opposed to a zero balance month after month. Keep charges below 30 percent of your credit limit at any given time.
Are you a senior or know one who could use some help managing finances? Share this article with them. And be sure to share your thoughts on the subject with us on our Facebook page.
Kari Huus contributed to this report.