David Lerner Associates: Four Credit Tips for Seniors

Credit scores may play a role in many areas of your financial life, regardless of your age. These include not only loans and credit, but also the rates you might pay on homeowner’s and auto insurance and whether or not you are approved for an apartment or condo lease. This makes it wise to keep your focus on maintaining a strong credit score — literally, for the rest of your life. Here are four tips to consider:

1. Don’t use too much credit. Ideally, you will enter retirement with a minimal amount of debt. This will make it easier to live on the reduced amount of income that you may have available to you after you stop working. Unfortunately, though, some studies indicate that older Americans are increasingly struggling with debt.

According to the Demos’ 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households, Americans age 50 and over have an average combined balance of $8,278 on all of their credit cards, compared with an average combined credit card balance of $6,258 for those under age 50. And more than one-third of those 50 and over who are carrying credit card debt use their cards to meet everyday living expenses.

The takeaway: Try to avoid using credit cards to pay for everyday purchases whenever you can, unless you plan to pay off the full balance on your cards each month. And if you are carrying large credit card balances, develop a plan for paying them off as quickly as possible.

2. Don’t use too little credit. There’s a flip side to using too much credit, and that’s not using enough credit. Some financially conservative seniors and retirees err a little too much on this side, using cash and debit cards to pay for everything. The potential problem is that your credit scores are partially based on how responsibly you use credit. So if you’re not using credit at all, this could result in a lower credit score.

If you don’t have (or use) any credit cards, go ahead and apply for a card, or start using the one you have sparingly. Be sure to pay off the balance in full before the due date in order to avoid interest charges and boost your credit score.

3. Be careful about cosigning. Seniors and retirees are sometimes asked by their children and grandchildren to cosign loans for them, since they may not have enough (or good enough) credit to qualify for a loan themselves. If you are asked to cosign for a loan, you need to be aware of the potential financial risk you are taking if you do.

If the primary borrower doesn’t make loan payments on time, this will appear on your credit history and affect your credit score, as well as the primary borrower’s. And if the primary borrower defaults on the loan, the debtor can come after you for repayment — as cosigner, you are just as responsible for repaying the debt as the primary borrower is.

4. Continue to check your credit. Jut because you’re older and/or retired doesn’t mean you should put your credit on cruise control. Get a free copy of your credit report each year by visiting www.annualcreditreport.com. Examine it carefully to see if there are any mistakes, and if there are, contact the credit reporting bureau (Experian, Equifax or TransUnion) directly to have them corrected.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC