Tiffany Taylor is a Financial Empowerment Coach with ESOP, a subsidiary of Benjamin Rose Institute on Aging. Julie Hayes is the Content Manager at Benjamin Rose Institute on Aging.
Your credit score has a major impact on virtually every aspect of your daily life. As demanding as it can be to keep your own finances in order, it can be even trickier for your older loved one to grapple with bills and balances. Consider the fact that for older adults, credit card debt is on the rise.
According to the Federal Reserve, debt among older adults has been up an estimated 83 percent over the last decade. Debt can substantially reduce their credit scores,which can make it difficult to impossible to retire or pay for basics needs. A fixed income combined with climbing costs of living and medical expenses can make it particularly hard for older adults to avoid falling deeper down the debt hole once they’re in it.
If your loved one has been dealing with credit card debt, there are a number of things you can do to help him or her get back on the right track. You can begin by making sure you understand why good credit matters and that you know how to navigate credit reports and scores.
Why does my loved one need good credit?
Credit is used by lenders to determine financial responsibility. If an individual has a low credit score, this indicates to lenders that he or she may be a high risk to receive and pay back money. This could result in:
· Having higher fees and rates
· Getting declined for new bank or credit card accounts
· Getting declined for credit line increases
· Getting rejected for:
- Employment
- Utilities
- Apartments or other rental housing
- Loans
- Cell phone plans
- Auto, homeowners and life insurance
Accessing credit reports and scores
To find out where your loved one’s credit stands, encourage him or her to request a free credit report. These are detailed records of a person’s history of borrowing money and paying it back. Credit reports are used by lenders, insurance companies, landlords and even employers to assess someone’s financial habits.
There are three major credit reporting agencies in the United States: Equifax, TransUnion, and Experian. Anyone can receive one free copy of his or her credit report from each of these agencies annually. To request a free copy, your loved one can go to annualcreditreport.com or call 1-877-322-8228. If you have Power of Attorney, you can also request a copy of your loved one’s report on his or her behalf. You will find a list of the documentation and identification required to receive the report when you visit the website or call.
Once you have the credit score, you will have information on your loved one’s:
· Payment history
· Amounts owed
· Length of credit history
· New credit
· Types of credit used
- Revolving credit—credit which has a set limit that can be renewed as debts are paid off, such as credit card payments
- Installment credit—credit which has a fixed, reoccurring payment amount and schedule, such as loan payments
- Open credit—credit which must be paid in full every month, such as charge card payments
The two major scoring systems used to determine a credit score are the VantageScore and FICO score. Your loved one’s credit report should indicate which system the reporting agency uses. Using the VantageScore scoring system, scores are ranked as follows:
· Excellent: 750-850
· Good: 700-749
· Fair: 650-699
· Poor 550-649
· Very Poor: 300-549
Using the FICO scoring system, scores are ranked as follows:
· Exceptional: 800-850
· Very Good: 740-799
· Good: 670-739
· Fair: 580-669
· Very Poor: 300-579
Both scoring systems advise remaining in the “good” range or above to avoid issues with money lenders.
It’s possible that your loved one’s credit report will have some inaccuracies, or potential warning signs of identity theft or exploitation, such as unauthorized accounts or expenses. If you see anything on the report that appears incorrect or suspicious to either of you, mail a copy of the report to the credit reporting agency it came from, with the inaccuracies clearly marked, or submit an online dispute. The Credit Reporting Bureau is obligated to investigate within 30 days of receiving the dispute, and must correct inaccuracies, delete any information they cannot verify and report the results of the investigation back to your loved one.
What can I do to help my loved one build better credit?
If you find out that your loved one’s credit score is low, there are several ways to help him or her regain solid footing. You can take the following steps;
· Keep track of your loved one’s bills to make sure they are paid on time
· Draw up budgets and payment schedules to get a handle on current debts
· Make sure your loved one maintains the lowest possible credit card balances
· Go over credit reports for any errors, and help to clear them up quickly
· Discourage your loved one from applying for unnecessary new credit cards
· If he or she needs a new credit card, find the best one available by comparing the interest rates of at least three options
· See to it that your loved one opens a secured credit card with his or her financial institution or credit union
The following actions should be discouraged, as they could drive your loved one further into debt because of additional monthly bills and mounting interest:
· Selling possessions at pawnshops
· Taking out:
- Tax refund anticipation loans
- Payday loans
- Title loans
- Debt consolidation loans
For additional guidance, you may want to get in touch with financial counseling services that assist older adults. A professional financial coach may be able to negotiate your loved one’s debt with lenders and find ways to help your loved one budget, save and work to get out of debt. The AARP’s Foundation Finances 50+ program also offers downloadable worksheets, checklists and resources such as sample credit reports for older adults and their caregivers to use when navigating finances.
