Helping a Loved One Maintain Good Credit

While it’s important for all of us, at any age, to keep our finances in good condition, issues of credit card debt are growing among older adults. According to the Federal Reserve, debt among older adults has been up an estimated 83 percent over the last decade. Debt can greatly lower the credit scores of older adults and prevent them from being able to retire or cover necessary expenses. For those living on a fixed income and facing rising costs of living and medical expenses, it can be especially hard to avoid falling deeper down the debt hole once they’re in it.

If we are caring for a loved one struggling with debt and maintaining good credit, it is important for us to understand credit scoring and how to help a loved one improve their credit so they can better manage debt.

Why is good credit important for a loved one?

Credit is used by lenders to determine financial responsibility. If a loved one has a low credit score, this indicates to lenders that they may be a high risk to receive and pay back money, which could lead to a loved one:

• Facing higher fees and rates
• Being declined for new bank or credit card accounts
• Being declined credit line increases
• Being rejected for: 
  • Employment
  • Utilities
  • Apartments or other rental housing
  • Loans
  • Cell phone plans
  • Auto, homeowners and life insurance

Navigating credit reports and scores

To determine a loved one’s credit, we can encourage them to request a free credit report. Credit reports are detailed records of an individual’s history of borrowing money and paying it back. These reports are used by lenders, insurance companies, landlords and even employers to assess a person’s financial habits.

There are three major credit reporting agencies in the United States: Equifax, TransUnion, and Experian. A loved one can receive one free copy of their credit report from each of these agencies every year. To request a free copy, a loved one can visit annualcreditreport.com or call 1-877-322-8228. If we have Power of Attorney, we can also request a copy of a loved one’s report on their behalf. Necessary documentation and identification required to receive the report will be listed to us or a loved one online or over the phone.

Credit scores reflect:

• 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. A 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 may happen that a loved one’s credit report contains inaccuracies, or potential warning signs of identity theft or exploitation, such as unauthorized accounts or expenses. If anything on the report looks incorrect or suspicious to us, we should mail a copy of the report to the credit reporting agency a loved one initially received it 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 a loved one.

How can I help my loved one improve his or her credit?

If a loved one has a poor credit score, there are steps they can take to improve their credit standing so they can manage their debt and access necessities their credit score may prevent them from obtaining. As a caregiver, we can help by:

• Encouraging a loved one to pay their bills on time
• Coming up with budgets and payment plans to help manage a loved one’s current debt
• Assuring that our loved ones are keeping their credit card balances as low as possible
• Checking their credit report for accuracy, and helping them to clear errors as soon as possible
• Discouraging a loved one from applying for new credit cards that they have no need for
• Assisting them if they need to shop for a new credit card by comparing the interest rates of at least three credit card options to find the best card for them before selecting
• Having them open a secured credit card with their financial institution or credit union

While there are many steps a loved one can take in the short-term to manage debt, we should discourage them from trying the following strategies, as these will not improve their credit scores in the long-term or encourage them to change their financial habits, and may lead them to go deeper into debt due to added loan and interest repayment.

DO NOT:

• Sell assets at pawnshops
• Take out the following loans:
  • Tax refund anticipation loans
  • Payday loans
  • Title loans
  • Debt consolidation loans

If a loved one is still struggling with debt, we may want to consider getting in contact with financial counseling services for older adults. A professional financial coach, such as those at Benjamin Rose Institute on Aging's ESOP, may be able to negotiate a loved one’s debt with lenders and find ways to help a 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.