Most of us know that these days our credit score is extremely important – and not just when we want to borrow money. Landlords have been known to use credit scores to help decide whether a tenant is worth renting to. Credit scores can affect everything from finding employment to buying a house. Auto companies advertise “teaser” interest rates that are only available to buyers with above average – or way above average – credit scores. Even insurance companies are sometimes using your credit score to decide how good a risk you are and what the cost of your coverage will be.
It’s clear that a poor credit score costs you money, so naturally this can make a big difference when you’re preparing to retire. That’s why we suggest you read this very helpful article just published on the popular financial website Motley Fool. It’s called “5 Tips to Skyrocket Your Credit Score Over 800,” and we pass it along as good solid financial advice, whether you think you’re planning to borrow money or not.
First, let’s look at a bit of history. Often a credit score is referred to as a FICO score. FICO is actually the name of a data analytics company that has been around for over 60 years, originally named for its two founders: Fair, Isaac and Company. The name FICO has been in use at least since 2009. A FICO score is a measure of creditworthiness, with a typical score ranging from a low of 300 to a high of 850. All of the major consumer reporting agencies in the U.S. and in many other countries use the FICO score as their gold standard. Needless to say, keeping your FICO score in good shape can be extremely important at any age, but especially when you’re approaching retirement, when having the means to borrow affordably can be critical.
A FICO score of 800 or higher is a rarity, something earned by about 11 percent of all Americans. Reaching the “perfection” of an 850 score is something only about 1 percent can claim. Even if your score isn’t where you want to be, the Motley Fool article has some good news: “a perfect credit score is actually a lot easier to achieve than you probably realize.” The article calls the recipe for good credit “shockingly straightforward,” and goes on to add that the reason most Americans have sub-par credit scores is due to poor budgeting and neglect of basic money management essentials. So what are the five tips to help all toward better FICOs?
The first rule is to pay on time. “Paying your bills on time accounts for 35 percent of your FICO score,” says the Motley Fool, because that kind of discipline means you can be trusted with a loan. The article says “without a shred of doubt” that this is the most important single thing you can do to boost your FICO score. And here’s something we found interesting: it’s a myth, says Motley Fool, that keeping a small credit card balance from month to month improves your credit score. All the credit bureaus want to see is on time payment. “If you pay your credit accounts off in full at the end of each month, you’re going to achieve the same positive benefit as if you carried a small balance.”
The second tip is don’t use too much of your available credit. This factor, called your credit utilization rate, accounts for 30 percent of your score, says Motley Fool. You can quickly determine this by adding up all your credit limits and determining the balance you owe as a percentage of available credit. Ten percent or lower is generally good. Thirty percent or higher might raise caution flags for a lender. Stay well below those credit limits.
The third and fourth tips from Motley Fool: have a good mix of credit accounts on your record, and try to keep those accounts for five years or longer. As to the mix, lenders want to see that you can handle different types of borrowing. “If you can handle a good mix of debt obligations,” says the Motley Fool article, “creditors are more likely to lend to you, and your FICO score is liable to benefit.” As for the length of time you’ve had a credit account, this speaks to your trustworthiness over time. The article further recommends you keep long-standing credit accounts open even if you’re not using them, as long as annual fees aren’t a burden, because those accounts you’ve held for a decade or two increase the average age of your accounts which in turn can have a positive FICO impact.
Finally, the Motley Fool piece advises to be careful about opening new accounts. These days every store at the mall has their own credit card, and they entice you to open an account with special rates and come-on discounts. Better think twice! New credit inquiries account for about 10 percent of your FICO score, so that “special deal” on newly opened accounts might not be so special if it lowers your credit score. Sometimes borrowing is necessary, but do it prudently and examine whether an existing account might meet the need, rather than a new one.
Speaking of acting prudently, regardless of where you are in planning for your retirement, AgingOptions can help. Our LifePlanning process has provided assistance to thousands of retirees, spouses, family members and friends, because LifePlanning deals with far more than finances. Of course, protecting your assets as you age is vitally important, but a good financial plan can fall apart without the proper legal framework to sustain it. If you fail to plan for your medical needs, those assets you worked hard to protect can quickly be drained away. You may know where you want to live as you age, but unless you plan ahead you will find yourself living under circumstances you never intended. Your LifePlan blends all these together – financial, legal, medical and housing considerations – and even helps ensure that your family is aware of and supportive of your wishes.
It’s easy to learn more about an AgingOptions LifePlan by spending a few stimulating hours attending a free LifePlanning Seminar. We hold these popular events at locations around the area, and of course there’s no obligation whatsoever. You can review the list of upcoming seminars and register online simply by clicking here – or if you prefer, give us a call during the week and we can assist you by phone. We’ll look forward to seeing you at a LifePlanning Seminar soon.
(originally reported at www.fool.com)