Tuesday, 10 January 2012
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