Most seniors probably don’t consider building and maintaining credit to be 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 might 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, with big increases in mortgage, auto loan and student loan debt.
Since borrowing is a more common part of the financial picture for older Americans, keeping a good credit score also needs to be a focus. Even for 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.
Have at least one credit card
Seniors managing well on Social Security plus their retirement plans might be tempted to go cash-only. But that is a 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, founder 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.
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 you don’t have credit in your own name, apply for a card right away. Just make sure to choose a card that reports to the three main credit bureaus — Experian, TransUnion and Equifax.
Separate your credit accounts if you are divorcing
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 in such cases 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 to his credit score was done.
“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.”
Guard your cards
Does a cleaning service or personal care attendant drop by your home regularly? Make sure you lock your credit cards away in a file cabinet or other safe place.
Also, do not leave a wallet or purse lying around in plain view. And don’t let a handyman roam around the house unattended.
Refuse to co-sign
Do not put your finances at risk by co-signing a loan or other form of borrowing. Perhaps it’s true that your grandson is having a hard time building credit as an unemployed 22-year-old. But he needs to figure things out for himself. In other words, welcome to adulthood, where things don’t always go the way you’d hoped.
For more on this topic, check out:
- “Ask Stacy: Should I Co-Sign My Fiancee’s Car Loan?“
- “Think Twice Before Co-Signing for Your Kid’s School Loans“
And if you want to help out that grandson the right way, point him toward “6 Simple Steps for Newbies to Establish Stellar Credit.”
Be vigilant for ID theft
Identity theft can happen to anyone at any age, but we are particularly vulnerable to scams of all types as we age. So, 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 Federal Trade Commission website offers step-by-step instructions on how to fix things. Also, check out:
- “Ask Stacy: Should I Pay for Identity Theft Protection and Credit Monitoring?“
- “Free App Helps You Avoid — or Recover From — Identity Theft“
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.
Do you know a senior who could use some help managing finances? Share this article with him or her. And be sure to share your thoughts on the subject with us on our Facebook page.
Kari Huus contributed to this report.