Credit Mistakes that Could Wreck Your Retirement

Yes, just like clockwork it happened again this year: I got older. As of this week, the Beatles song, “When I’m Sixty-Four,” went from being a hypothetical to a reality for me. This means that next year, I will officially become a senior citizen.

It’s a jarring prospect. Like most baby boomers, I don’t feel especially old. We’re the cool ones, the generation that brought America rock ’n’ roll, yoga, and the belief that we can do well by doing good. With good reason, we view ourselves as eternally young, hip and savvy.

We are a confident generation, which is a good thing. But when it comes to the way we manage our financial lives – particularly our credit – that confidence can make us vulnerable. With that in mind, here are the top seven credit mistakes senior citizens make.

1. Assuming You Are Nearing the End of the Road

When we grew up, 70 was old. Now 70 is the new 50. (80, however, is still 80.) Now the average life expectancy is 84 for men and 86 for women, according to the Social Security Administration. Among married couples where both partners are 65, there’s a seventy percent chance that at least one person will live to 85, according to a report by the Society of Actuaries.

How to Fix It: Take Billy Joel’s advice and don’t go changin’. Or at least don’t change too much. If you’re 65 or older, the rules are the same as when you were 25. Treat credit as a long-term asset with important risks, responsibilities and benefits.

2. Avoiding Credit

Many seniors are justifiably proud of their financial accomplishments. They’ve paid off their mortgage, chopped up their credit cards, paid cash for their car.

But if the car dies, a financial emergency arises, or after the kids go off to college and the dog dies, you may need or decide to sell the family home and buy something more suitable. You may need a loan. And if you foreswore credit years ago, you might have become a “credit ghost” and your credit score likely has dropped, which means you will pay more money in interest.

How to Fix It: Don’t fear credit. If you don’t have a credit card, get one. Use it as you would a debit card, charging only what you can afford to pay in full at the end of each month. This will help rebuild your score, hopefully in time for the next emergency or life event.

3. Taking on Too Much Debt

A recent study by Demos finds that Americans aged 50 and over have an average credit card balance of $8,278, compared to $6,258 for people under 50. Kent State University researchers found that elderly people are more likely than any other age group to file for bankruptcy.

As Gerri Detweiler, director of consumer education at Credit.com, wrote in a recent column, senior debt has many causes. More than a third of people over 50 with credit card debt use their cards to cover basic living expenses, Demos found. Afraid to seek advice from licensed financial professionals, they may fall prey to debt collection scams or get hoodwinked into withdrawing money from their retirement accounts to pay off credit cards.

How to Fix It: Avoid taking on too much debt. If you’re concerned about debts you already have and don’t know what to do, find an approved credit counseling agency. (Hint: Good ones don’t tend to charge upfront fees.)

4. Student Loans

Many senior citizens are drowning in student debt. Americans over 60 owe about $43 billion in student loans as of Q4 2012, according to the Federal Reserve Bank of New York. The average borrower over age 60 owes $19,521 in student loan debt, and 12.5 percent of them are delinquent on their payments. Some took college classes later in life. Others have debt leftover from school days long past, or cosigned on student loans for their children and grandchildren.

How to Fix It: Look Before You Leap. If you’re a senior, think twice before signing for any student loan, whether for you or someone else.

5. Co-signing

To help their kids or grandkids buy a car, get a mortgage or attend college, many seniors co-sign loans. What many don’t realize is that lenders and credit reporting agencies don’t distinguish between borrowers and the cosigners.

If the borrower fails to make on-time payments, the cosigner’s credit score could take the same big hit. Embarrassing phone calls—and lawsuits—from debt collectors could follow.

How to Fix It: Just say no. Avoid co-signing loans. Lend money directly, which won’t put your credit at risk. A monetary loan or gift could help a loved one get a secured credit card and start establishing credit of their own, without endangering your financial future.

6. Failing to Check Your Credit

Only a quarter of all seniors regularly check their credit histories, according to a report by the Society of Certified Senior Advisors. Of those who do, 36 percent found errors, some of which were severely damaging their credit scores.

How to Fix It: Check your credit for free once a year with each of the three major credit bureaus and sign up for tools such as Credit.com’s free Credit Report Card, which allows you to see your credit profile and provides free scores that update monthly.

7. Failing to Understand Reverse Mortgage Risks

A reverse mortgage can provide seniors extra money during retirement by tapping all the equity they’ve built up in their home. The loan is repaid only when they die, sell or move out of the home.

However, reverse mortgages can also be complicated, and come with risks. The average age of seniors obtaining reverse mortgages is dropping, according to a report by the Consumer Financial Protection Bureau, and 70 percent of them take their payments in one lump sum. That could leave them with fewer financial resources to deal with moves or other future expenses, the bureau found. A growing number of reverse mortgage borrowers are at risk of foreclosure. Additionally, depending on the terms of the mortgage, the spouse of the reverse mortgage borrower might be forced to move out of their home when the borrowing spouse dies or moves into an assisted living facility.

How to Fix It: Do your homework. Meet with a certified financial advisor to see whether a short- or mid-term reverse mortgage is right for you.

It’s a new age for me, as it is for America. As our generation gets older, more senior baby boomers will face questions about credit. The good news is — as we live longer, healthier lives, the same good practices that got us so far will continue to help us now.