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Tuesday, 10 January 2012

Elder Credit

Did you know that renting a car with a debit card will hurt your credit rating? I didn't. So will closing a credit card that has a zero balance.

At least that's what AARP tells me and for now, I'm taking their word for it. But let me back up for a moment.

As a lot of people reading this blog know from personal experience, barring the unlikely event of winning the lottery or receiving some other kind of unexpected windfall, what money you've got right now in retirement, is pretty much what you're always going to have.

According to the U.S. Census Bureau, the median annual income for people 65 and older in 2010 was $31,408, down 1.5 percent from the previous year. So the average elder is losing ground financially – a slow bleed - and a reason to be careful with one's credit score.

[Tangential relevance to this post but definitely worth knowing: “For more than half (55 percent) of elder beneficiaries, Social Security provides the majority of their cash income. For one-quarter (26 percent) it provides nearly all (more than 90 percent) of their income. For 15 percent of elderly beneficiaries, Social Security is the sole source of retirement income.”]

My income is about 20 percent of what I was earning when I retired. I do fine, I'm not deprived but there isn't a whole lot of wiggle room. So without being fanatical or obsessive I keep watch on my income and outgo.

First, I don't own a debit card because, old fashioned or not, it's too easy to lose track of the checking account balance when there are many small deductions. By using cash for all but a few conveniences such as gassing up the car and online purchases, and budgeting only a certain amount of cash per week, I always have a sense of how much money is available by glancing in my wallet.

I also have a personal limit on how much I can charge on my credit card each month. There are some automatically charged subscriptions that don't amount to much and well, you know how it goes - there's always something that brings that balance up to the limit I set and, sometimes, goes over but not dramatically.

A long time ago, when I was very young – under 20 – and on my own for the first time, I let myself get so deeply in debt that it took two years to pay off.

Two years in my upper teens (I'm sure you recall how that amount of time feels like a century to an 18-year-old) when there was hardly a dime for myself above rent, transportation to and from work and food. I swore I'd never let that happen again.

And I did not - except for an emergency hospital stay of 10 days when I was between jobs and between health coverage.

I will leave what that 10-day stretch in the hospital cost to your imagination. It took three years to pay, but unlike my youthful credit transgression, at least I had high-limit credit cards to cover the mid-five-figure bill and could juggle the balance depending on rate changes to keep the interest costs to a minimum.

Having that solution had been intentional. Since I was never going to have a ton of money and had been so stupid as not to choose rich parents, I needed a financial backstop to cover big-money emergencies.

So, back in the days when the big bank credit companies sent out half a dozen invitations a week for new cards, I accepted many of them. Then, on the assumption that once I retired they wouldn't be eager to give more credit to a non-working old woman, I added two or three more cards during the last few years I was employed.

I rotate using them and sometimes charge more than my self-imposed limit to pay off over three or four months to keep up my sterling payment record. It only costs a few dollars in interest and it has saved my ass on several occasions. To wit:

When I was buying my home in Portland, Maine, in 2006, it looked for awhile that the date of the sale of my New York home would not happen soon enough to meet the closing date of the Maine purchase. I might need a large bridge loan. The lender put me on hold on the telephone while he checked my credit rating.

When he returned to our call, he was almost breathless, “My god," he said, "you have an awesome FICO score.”

Yup. And I keep it that way because I live alone and I don't have much family – certainly none with emergency funds they can part with - so without decimating my small savings, I have nowhere to go except credit cards if fate suddenly deals me a hand in which I need a large chunk of money quickly.

Which brings me back to those two facts from AARP about credit ratings. The organization's website has posted a little quiz called "Will It Hurt My Credit? with ten questions. I correctly answered ONLY FIVE of them.

Go try it yourself. It doesn't matter how many you get right or wrong. It's the learning experience that matters.


At The Elder Storytelling Place today, Mary B Summerlin: Dorothy Called


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

My husband and I use debit cards for most purchases, but the accounts they draw from contain only enough to cover our monthly food, car, entertainment and pharmacy expenses. If one of us needs more, I move money electronically from savings to a debit account. Without the comfort of knowing we have a high-value credit card in our hands, we actually spend less with debit than we did with credit.
But, Ronni, please tell more about the credit-rating pitfalls of debit-card use. That sounds counter intuitive.

Ronni--Glad that you have done/are doing so well at managing your finances. You do pique my interest, however, on your under-age-20 caper. I have no idea how a person of that age - and especially one who is a woman - could amass any appreciable debt. Wow! There is no possibility that I could have done so as there would have been no source of loan(s). I could not even get a credit card in my own name until 1976 when the legal mandate became law.


We also have three credit cards that we rotate and pay off monthly.

On each of them I am the primary holder. When I was working and making a decent salary, I was always afraid that if everything was in my husband's name and he died,I would never be able to secure credit. So, I took out the cards in my name because I knew they would be approved on my salary alone.

Of course, that was many years ago. I think,at least I hope, things in the credit world have changed by now and it wouldn't be necessary to do that.

When we wanted to buy a new car,the company was offering NO down payment and NO interest on a 4 year loan if you qualified. When the car dealer went to check our credit score and came back with a huge smile on his face we knew we had been approved.

All of the cards have rewards attached to them and we have taken every advantage of that. One card is a major airline and in the past we have taken a few free trips to faraway places at no charge beyond taxes etc.

It's not as easy as it used to be though. It was once just a matter of making your reservation but today they make it as difficult as they can to use your miles so I am thinking of dropping that card.

Thanks for bringing this subject up today,Ronni. It is always good to read about other people's way of surviving here in 99% land.

paula b...
You'll have to follow the link I provided to the story at AARP. I'm quoting their quiz and, as I noted, have not followed up elsewhere.

Cop Car...
You're correct that credit was hard to come by for women in those days but individual department stores and shops gave out cards fairly easily where I was in San Francisco.

Also, I don't recall the amount of debt I piled up but if I could, I'm sure it would be laughably small by today's standards.

I do, however, recall my take-home pay then, $54 and change every two weeks, so it would not have been more than a few hundred dollars for it to cause problems for a couple of years.

I suspect the answer to some of those questions would be different in the UK. I've never seen anything as explicit as this though.

In particular I don't see the rationale behind 'hard' and 'soft' requests. The whole purpose of these ratings agencies is to provide an easy way of checking credit, so it seems ridiculous that you should be penalised when that happens.

I'll have to do some research on the UK position.

Found this BBC link from 2008
http://news.bbc.co.uk/1/hi/business/2963580.stm

And this from a consumer advice site:
http://www.moneysavingexpert.com/loans/credit-rating-credit-score#check

There do seem to be some critical differences, not least of which is that the precise criteria on which ratings are calculated by the different agencies are not published - I suppose to avoid 'gaming' the system. I know I though of a couple of possible ways to do that reading the AARP quiz.

Re: women getting credit

In 1975, when I was a mother with a full-time teaching job, I talk my father into co-signing a car loan for me, because I no longer had a husband. If the bank had known anything about my former husband, they would have been thrilled that I was the one applying for the loan, not him. I've never had trouble getting loans or credit cards since that time.

In the 70's I wanted to buy a fridge from the local Sears store but was refused because of my gender. Even though I had a steady job and my husband didn't he was the one that had to sign the papers ( bought on payments). The next year we separated and he quit making payments. The Sears owner asked my for the money and I had the great satisfaction of telling him to see what's-his-name as he wouldn't allow me to sign. Love it and it still makes me smile!

Maybe worth noting: credit scoring companies (there are three), if you ask, MUST let you get a FREE credit report once a year. Just google "my credit score"

Also note that any two of these three facts allow anyone to check your credit rating: 1) your SSN, or 2) your birth date, or 3) your current address.

(I learned this while preparing a child support report for a district attorney's office.)

I missed five of those questions too. My first credit card was from Frederick and Nelson in 1965, the only department store in Seattle I could find who would give me one even though I had what was a good job then. Glad those days are gone.

Steve Kemp makes a good point about a free annual credit report from each of the three agencies. Sorry, I'd assumed that was well known and implicit in my stating that I track this stuff fairly carefully.

I know better; it's never good to assume.

If you actually tried to rent a car with a debit card you would probably find it very hard to do, Ronni, unless things have changed recently. We've found, in the past, that most car rental companies in the US refuse to accept debit cards at the time of booking. (That's so they could charge the full cost of the car to your credit card if you did a moonlight flit.) As long as they have your credit card details in their system, when you return the car they are happy for you to pay the bill with a debit card instead if you prefer. I don't see how that could affect one's credit rating since the transfer of funds is immediate.

Their quiz sounded interesting but I am not going to log in there to take it. I have a good credit rating, had better than my husband last time we checked. I also believe it's important for women to establish their own credit as I remember how it was for my mom when Dad died and she had to start from then.

We have a debit card through our credit union after I resisted it for years and years. But we got far better interest on our savings if we got the card. To keep the higher interest, we have to use it to auto pay a bill which is easy and use it enough times. It is free to use other ATMs; so long as we use the debit enough times. So far I've been happy with the results and don't care if a system downgrades us some for having one as it seem silly as long as we use it reputably.

We put virtually everything we can on our one credit card and pay it monthly, automatically from our checking account. I keep a close online watch on charges and balances. We do this because it gives us a record of our spending, including pharmacy, church, dentists, etc. for income tax purposes plus our card offers, and actually gives, "no hassel" flying miles usable on any airline any time.

I haven't checked our credit score lately, but I suspect it's sterling. The c.c. companies don't like us monthly balance payers because they don't get any interest. I heard we are called "dead beats", of all things ironic.

Then there's my kids, a couple of whom were the "poster children" (their term) for the consumer debt fiasco. Their credit scores are zip these days, which is a good thing. They now have to live within their means.

The quiz was enlightening. Thanks for the tip. We elders can't know too much about ins and outs of money management.

Like Paula B, we use our debit card for most purchases. Every night we subtract what ever we spend...rounding up to the whole dollar. For me, this is a gift as my handwriting is no longer legible, and I fumble everything with my lack of hand eye coordination. We only keep what we use, and the rest of our money goes into one of those accounts that earns us 1 measly %.

That was a fascinating quiz. I was appalled at my waffling, my guessing, and pleased that I only missed three.

Ronni--I hear you. My first full-time job grossed $28/week - in 1955. In 1976 I threatened to sic an attorney on a local clothing store who defended their having issued a card, for which I had applied, in my husband's name.

Stefani--Oooh - I loved your story!

Rain--I smiled upon reading your comment because it reminded me of my mother. When she died and I contacted the company that provided her credit card protection (so that I didn't have to contact each cc company, individually), I had a hard time getting them to believe I was who I said I was. My mother's maiden name didn't provide "open sesame". It turned out that my mom had never bothered letting any of the credit card companies or the service know that my dad had died. All of their married life, she was as apt to sign his name as her own. She truly saw them as one person. Thanks for triggering the memory.

P.S. Perhaps I should clarify that the cc protection service actually had my dad's mother's maiden name on file!

I don't have a debit card from choice and I didn't have a credit card in my name until I was well into my 40s. Unlike smart Nancy (above) credit cards were always in my husbands name when I was married. No credit is almost as bad as bad credit because you have to have someone to cosign with you until you establish your own record.

Today, like Tarzana, I use a credit card for practically everything, including food, meds, entertainment, etc., and pay the card off once a month. I don't know what a high-limit card would be. I imagine mine is on the low side; it wouldn't see me through very many days in the hospital - I know that for sure. It's a lot more than I need on a month to month basis, though.

I don't carry cash for the same reason you don't have a debit card, Ronni. My mother used cash, but I much prefer having a record of what and where I have spent money, which a credit card statement provides.

By the way, I just had to cancel a credit card because of a charge that I did not recognize - possible fraud, the bank called it. The amount was so small that I wondered about the fraud bit. I wonder if the ratings agency differentiate between cancelling because of vigilance and cancelling just because? Probably not.

Informative post and comments (I also got only five right, and had to take a wild guess at one to achieve that.)

We refuse to use a debit card. We charge everything we can on one credit card, and use another on the rare occasions the major one is not accepted. That maximizes rebates, which can be substantial over a year. We have two or three other cards we seldom use just to have the credit available if needed.

When we do need cash, we get it at supermarkets. Several where we shop will provide "cash back" above the amount of credit card purchases. This eliminates the need to use ATMs. Cash backs carry no interest or fee charges.

For those who want to use credit cards as a lifeline in the event of emergencies, as Ronni and we do, you can get your limit increased for almost any good reason if your credit rating is good. You may have to wait six months to a year after getting a new card to be granted a limit increase.

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