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Frugality Hurts Credit Score for Elderly

Clarkston Legal May 30, 2016

Last week, we came across an article in the Sunday NYT Business section about an elderly individual whose practiced frugality damaged his credit score. It turns out, if you do not need or use much credit, your overall credit score suffers.

The 63-year old saw a classic car he liked at a “one-day-only” price. He had plenty of cash in the bank but did not have his checkbook.

The car dealer offered him a car loan at a mere 2.9% interest. But when this man completed the application and the dealer ran his credit, the credit bureaus had never heard of him because, for years, he did have any open accounts.

That included his home mortgage which he dutifully paid-off 10-years earlier. The reward for his frugality: if he wanted the car, he would have to pay 7% interest on the car loan.

When you manage your finances well enough to avoid using much credit, you don’t have sufficient data to generate a credit score. Combine that with a retiree’s usually lower income, and lenders view you as a poor credit risk.

AARP reports that the notion that retirees no longer require credit is a myth. Many retirees seek mortgages to downsize their residences, or may have lingering credit card balances from the recession.

One tactic is to maintain one credit card, make occasional purchases, and pay the bill timely each month. Another tip is to develop a line of credit prior to retirement, when your income is generally higher.

The best general rule is to always use credit wisely and responsibly. Keep your lines of credit open while you are working, even if you don’t need it because, someday you may want to tap some credit and you will want to have it available.