Repairing credit can sometimes begin with knowing what mistakes and errors should be avoided. This is certainly in the case of the nation’s older population.
Need for extra caution
Senior Americans to be careful of their finances for a whole host of reasons. Retirement means income is curbed severely, with few having additional supplements to their Social Security. For the lucky ones with private pensions or savings, low interest rates don’t do much to boost these assets without undertaking a risky investment strategy.
Here are the top 3 credit errors that seniors make with some tips on what to do to combat them:
Error Number 1- Overuse of Credit
Debt is not just a concern of the 18 – 49 year old demographic. The Demos’ 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households showed that Americans over the age of 50 have an average combined credit card balance of $8,278. This is in contrast to the average of $6,258 held by under 50s in credit. Letting balances sit means more interest, potential late fees if payments are tardy and damaged credit, as 30% of your score is comprised of amounts currently owed.
What to do to avoid this error: If you are struggling to repay your debt, it is important to ask for help from a responsible and registered credit counseling agent. They can give you targeted advice on how to best deal with your debt situation. Also, consider looking towards other sources such as withdrawing from retirement funds to pay off of credit card debt rather than letting it languish. Do not let debt collectors pressure you – know your rights before making any payments that may be demanded of you.
Error Number 2- Underuse of Credit
The extreme opposite of not using enough credit is also damaging to older Americans’ credit. With their house mortgage cleared and car fully paid up, many have a tendency to pay for purchases with cash or debit card. Although this is a good move for saving money and keeping on track with a budget, it is harmful to their credit scores. Your credit score is important for calculating discounts for homeowners or automobile insurance and having a good score can help you get the best discount. So, credit scores are not just important for borrowing! In addition, credit cards provide a higher level of consumer protection for fraud liability or disputes concerning billing anomalies, meaning credit cards are not just for “buying now, paying later.”
What to do to avoid this error: If you have one credit card, consider getting another one for the benefit if your credit reports. If you do not have one, apply for one and use it sparingly, paying down the full balance every month to generate positive reporting to boost your credit score.
Error Number 3 – Cosigning for a family member
In a survey by Demos, almost 25% of respondents aged 50 or older reported that a portion of their credit card debt was acquired by to giving money to, co-signing for or paying for a family member. Cosigning for a relative is a great financial risk that damages the credit of older Americans.
What to do to avoid this error: It is better for your credit score to lend money to your relative that needs help, instead of cosigning for them. That way, if they miss any repayments for something, as primary borrower any defaults are recorded in their name, not yours.
Learn more about credit repair
We have a library of articles on how to understand your credit scores, repair your credit situation and tackle debt successfully.