7 ways to keep credit strong in your later years
By Allie Johnson
December 2, 2015
If you're heading into your golden years financially secure, you might think you can stop paying attention to your credit. Think again. Just like a muscle, you must use your credit to keep it strong.
Some seniors pay off their mortgages, buy cars with cash and close their credit cards, but that's not a good approach to dealing with credit as you age, says Tracy Becker, president of credit repair and education company North Shore Advisory.
“You have to be on your game because you never know what's going to happen,” she says.
Here are seven tips for keeping your credit strong in your later years:
1. Keep cards open. Do you have a wallet full of cards and want to simplify things? Don't just close cards, Becker says. There are good reasons to keep your card accounts open. For example:
- You want to keep your credit score high. If you closed all of your cards, those accounts would remain on your credit reports for 10 years. But you can't build or improve your credit “if you don't have any open credit,” Becker says.
- Old accounts boost your credit. The length of your credit history counts for 15 percent of your FICO score, according to myFICO.com. That includes the age of your oldest account and the average age of all of your accounts. So, closing old accounts could lower the average age of your accounts and end up hurting your score, Becker says.
- Life is unpredictable. You never know what will happen in the future. For example, Becker advised a couple in their 70s to keep open their credit card accounts (they planned to close all six cards, which had high limits of $15,000 to $20,000). Soon after, the couple's daughter became sick, and the couple used their cards to pay her mortgage for a year while she recovered. “It turned out to be a really great thing they had those cards,” Becker says.
2. Keep cards active. Use your cards regularly. In calculating credit scores, FICO notes when you last used an account, according to myFICO.com. Also, a card that sits in your wallet unused can be closed due to inactivity. Finally, if you're financially secure and a good money manager, you're in the perfect position to earn points, miles or cash back by running your regular purchases through a rewards card and paying the bill in full each month. “You can use your cards to your advantage,” Becker says. But, if you prefer not to do that, at least use your cards a couple of times a year.
You have to be on your game because you never know what's going to happen.”
— Tracy Becker, president of credit repair and education company North Shore Advisory
3. Don't apply for new cards willy-nilly. Be strategic about opening new credit cards. Every time you add a new account, it reduces the average age of your open accounts, which can lower your score, Becker says. Also, your credit score can temporarily take a hit from too many inquiries. That's exactly what led Janet Crain, a 61-year-old New Jersey business owner whose credit score is in the 800s, to stop opening lots of retail cards. “It used to be that if Best Buy would offer me 10 percent off or Staples would give me 2 percent off, I'd just open a credit card, not thinking about the ramifications,” Crain says.
4. Borrow some “credit juice.” If your credit score needs a boost and your spouse has a very old credit card account, getting him or her to add you as an authorized user can help your score by increasing the average age of your accounts, Becker says. However, when you become an American Express account as an authorized user, she says it shows up on your credit report as a brand new account so keep that in mind before trying this trick.
5. Remember to pay on time. If you use a card infrequently just to keep it active, like charging a once-a-year subscription renewal on it, set up calendar reminders so you don't forget to pay a bill and end up with a late payment mark on your credit, Becker says. Check all of your accounts at least monthly online to ensure everything is in order.
6. Mix up your credit. Having a healthy mix of open accounts — such as credit cards, an auto loan and a small personal loan — will boost your score. So even if you can afford to plunk down cash for your next car, consider taking out a low- or zero-interest car loan, says Bob Burger, a fee-only financial planner at Disciplined Money in Phoenix. Plus, if your investment portfolio earns more than you'll pay in interest, buying a car on credit is a smart financial move, Burger says. “Why not use their money?” he says of lenders.
Using a loan also frees up the cash you would have spent on the car. You can pay off the loan any time you want to, but you can't do the reverse if you have a tight month. “You can't call up the car dealership and say, ‘Hey, can I have some of that money back that I spent on my car? My air conditioning went out,'” Burger says.
It's always important to keep good credit.”
— Janet Crain,
61, a business owner in New Jersey
7. Know where you stand. It's important to check your credit regularly and even consider signing up for a credit monitoring service, Becker says, noting that some fraudsters specifically target seniors. “Lots of older people end up being victims of fraud and ID theft,” she says.
For example, Crain signed up for a credit monitoring service after a fraudster charged $22,000 on her American Express card in 24 hours. Due to consumer protections on credit cards, she wasn't liable for the fraudulent charges, but she decided she wanted to keep a closer eye on her accounts. She now has peace of mind, the ability to check her score as often as she wants and tips from the service provider on how to keep her credit strong, she says.
As she gets older, Crain says she'll always care about her credit. In a few years, she and her husband plan to sell their home and rent an apartment — and most landlords check credit. She also might want to co-sign on a loan for one of her adult children or get a loan for her business, she says.
“It's always important to keep good credit,” Crain says.