Welcome to retirement! How’s your credit?
Most seniors probably don’t consider building and maintaining credit a top financial issue. After all, it’s assumed that your home and car are likely paid for and that you’ve got all the furniture and dishes you need.
That’s true for many but not all retirees. According to the Federal Reserve, the number of 65-and-over Americans with debt increased from 30 percent to 43 percent between 1998 and 2010, and the median value of those obligations rose 56 percent during that time frame. Mortgages made up about half of all debt for people in that demographic.
Even if your finances are on an even keel, you should be aware of a few golden rules for credit in your golden years. Here’s what Money Talks News money expert Stacy Johnson advises. Once you’ve watched his video, come back for more details about credit as we age.
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.
Think your credit score no longer matters? You’re mistaken.
Credit information is factored into insurance premiums and loan interest rates. Besides, you never know what the future has in store. Having access to credit is essential in case of unexpected expenses, such as having to add a wheelchair ramp to your home. Having a healthy credit score is prudent, not paranoid.
So use that credit card, but always pay in full 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.
“Everyone should have a card”
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.
“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.
Suppose both partners have decent credit scores when they come to a parting of the ways? “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.
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 “How Can I Build Credit Without a Credit History?”
- Check your credit report. 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.
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