Published August 02, 2012
Seniors who pay off their mortgages and cars may be free from a life of debt, but in return they may be shackled with a new problem: the inability to get a credit score.
Liz Greenwood, credit counselor with the nonprofit Philadelphia-area group Clarifi, says that not only may seniors not realize they could end up "unscorable," they may not even see it as a problem.
But not having a score can be a big problem as landlords, utility companies and banks may want to see that number to gauge their risk in providing services, even if the applicant has a long, sparkling credit history.
Leading score maker FICO says a consumer's credit report has to have three things to generate one of their scores: an account at least six months old, an account updated by a creditor or lender within the past six months and no death notice on file.
If a person has only new or substantially inactive accounts or no open accounts whatsoever, FICO can't produce a score. And if you're a senior who has dutifully paid off all debts, you could easily feel the effects of that in these situations:
Barrett Burns, president and CEO of VantageScore Solutions, another leading credit score maker, says this last situation occurred recently in his own family. A financially secure female relative went to get her own credit card at a major bank after her husband died, and the bank only gave her a $400 limit.
"I was outraged," Burns says. "How in the world could this happen? Well, she didn't have a credit score, so I saw it up close and personal ... We recommend people keep at least (one) credit card alive and probably in two names" (one for each spouse), Burns says.
Karen Carlson, director of education for InCharge Debt Solutions in Orlando, Fla., gives an example of a relative of hers who had been a renter in the same neighborhood for more than 50 years. Because he knew everyone and hadn't been using credit, no one ever needed to pull his credit score, she says. But then he moved to a new town to be closer to family and discovered he had no score to help him start over. "It's not that unusual for people in their 80s," she says.
The good news is that for those seniors who have found themselves in the unscorable crowd, the fix is relatively easy. You just need to jump-start credit activity so the scoring models know you're alive and can start churning your information into a score. For instance:
For a generation that had paid off accounts and lived without credit for decades before credit cards were widely used, however, heading back into using credit is hard, Burns says. Paid-off mortgage notes, for example, were such a celebrated life accomplishment that it used to be a tradition to literally burn the note at a mortgage-burning party. "Prudent people didn't borrow, especially if they got close to retirement age."
"These people (seniors) are products of the Great Depression and the second world war," says Carlson. "There's a lot we can learn from them, but maybe the thing that they can learn from us is it's very helpful to maintain a credit score."
Carlson wants to make it clear that, once their credit is active again, seniors should keep paying off bills and that maintaining a healthy credit history does not mean living beyond their means.
"You do not have to actually have debt to have a top-notch credit score," she says.