Having a Good Credit Score Is Important for Seniors

senior citizens credit scoresMany older Americans have paid off their mortgages and are debt-free. They may think that having a good credit score is less important than it was when they were younger, but that is not true. Having good credit is necessary for senior citizens.

People often do not realize that nursing homes and assisted living facilities are not covered by Medicare. They require private payments from Social Security, pensions, savings, or family contributions. About 10 percent of senior citizens live in senior housing.

Seniors who want to live in nursing homes or assisted living need to fill out an application. One factor that facilities look at is seniors’ credit scores. Since individuals will be making payments, the facilities need to know that they are likely to pay their bills.

Assisted living facilities and nursing homes are expensive. They can easily cost $5,000 per month on average, and even more if seniors need around-the-clock access to nurses.

Most seniors do not have enough money to pay all of these costs out of their savings. That is why it is important to have a good credit score. That demonstrates to the facility that the person has managed debt, such as a mortgage, car loan, and credit cards, responsibly in the past. The rationale for looking at seniors’ credit scores is the same reason why landlords look at prospective tenants’ credit.

Seniors may find that their credit scores decreased as they got older. This can happen for several reasons.

One of the most common causes is fraud. Senior citizens can be victims of identity theft, which is why it is important to obtain a free credit report every year and check it for errors.

Seniors may also miss payments, particularly for medical bills. With bills covered in part by Medicare, private insurance, and savings, sometimes seniors do not realize that they still owe a balance. An unpaid medical bill can wind up on a person’s credit report.

A high credit utilization ratio can also lower a person’s credit score. Closing accounts that are not used can reduce the amount of available credit.

Inactivity does not hurt a credit score, but a credit card company can close an account if it is not used for a period of time. That can affect the credit utilization ratio and the length of the person’s credit history.

Seniors who need to improve their credit scores can do so without going into debt. The easiest way to improve a credit score is to use a credit card and then pay the balance in full every month.

New Lenders Create Their Own Credit Scores

alternative credit scoresWhen consumers apply for loans and credit cards, lenders generally look at their credit scores. However, some lenders are developing their own ways to evaluate applicants’ creditworthiness. These scores consider factors such as education, employment history, savings, and investments. Alternative lenders are working with traditional analytics companies, such as FICO, to test underwriting models that combine traditional credit information and other sources of data, such as public records and utility payments.

Last year, FICO announced that it was working with LexisNexis Risk Solutions and Equifax on an alternative scoring model called the FICO score XD. It combines traditional credit data and other sources of information, such as public records and cable payments. The new score will be available later this year. It is currently being tested and has received strong interest from lenders.

Many young people are not as concerned with building their credit histories as previous generations. Millennials are significantly less likely than older generations to own a home at the same age and are more likely to use debit cards instead of credit cards. Alternative lenders can look at other types of data, such as social media and previous interactions with the lender, to evaluate the creditworthiness of young borrowers.

Alternative lenders say that by looking at other sources of data, they are giving borrowers the chance to qualify for better rates. This can decrease the cost of obtaining credit for millions of people around the world.

The new system also reduces the incentive for people to open lines of credit simply to help their credit scores. The current system encourages people to open credit card accounts and take out loans to improve their scores. That can tempt people to make financial decisions that are not in their best interest.

Traditional lenders question whether the new algorithms are a good idea. They say the new methods have not been used long enough to be tested properly and that alternative lenders do not know how their borrowers will fare if there is an economic downturn and many of them lose their jobs. New lenders say they have tested their underwriting procedures and have confidence in their models.

Conventional lenders may not want to replace traditional credit scores with alternative scores. They may instead use new scores to complement their current methods of evaluating applicants’ creditworthiness.

Many Americans Are Loyal to Their Credit Cards

Americans credit card useA survey conducted by CreditCards.com found that 25 million consumers have kept their favorite credit card for 10 years or more, and an additional 20 million have never changed their favorite card. The study found that 56 percent of consumers have at least one credit card and that the most popular perks are rewards and cash back.

Nineteen percent of people have preferred the same card for at least 10 years, and 15 percent have never changed their primary card. Senior citizens tend to be the most loyal to one card. Thirty-one percent have been using one card for 10 years or more, and another 20 percent have never switched cards.

The most common reason people gave for not switching credit cards was concern about hurting their credit score. Forty-four percent said they were worried that canceling a credit card would hurt their credit score. Fifty-seven percent of people between the ages of 18 and 29 had that concern.

Keeping a credit card for a long period of time can help one’s credit score because the length of a credit history is an important factor in determining a score. There is no downside to keeping a credit card for a long period of time if the cardholder pays off the balance in full every month.

Canceling a credit card can be especially detrimental to young adults, who have shorter credit histories and fewer accounts. Closing an account can also lower a person’s total available credit, which can affect a credit score. It is better to put aside a credit card that is no longer wanted and not use it than to close the account. Consumers who tell their credit card companies that they are thinking about closing their accounts can often get better interest rates and rewards if they decide to stay.

Twenty-four percent of respondents said they changed their favorite card in the past few years. That was most common in the 18-29 age group, with 43 percent saying they had switched cards. Young people tend to acquire new cards to build up their credit histories and find ones that best suit their needs and spending habits.

Many middle-aged adults change their credit cards every several years. Nearly one-fifth of those in the 30-49 and 50-64 age groups changed their preferred credit cards in the past four or five years.

Many people base their credit card decisions on their life stage. People who are young and do not have children may like to travel and choose a card with travel rewards. People with children may prefer cards with cash back.

Many consumers do not shop around for new credit cards that could offer them advantages like rewards, cash back, and a lower interest rate. Some people do not understand the advantages of opening a new credit card account. They may also just be happy with the cards they already have. Financial experts recommend that people evaluate the cards they have every four to five years or when their lifestyle changes.

Thirty-five percent of respondents said they preferred cards with reward points or cash back. Credit cards with rewards can save consumers significant amounts of money. It is important for customers to pay their balances in full to avoid accruing interest. Even if consumers are not looking for cards with rewards, they can still open accounts with lower interest rates.

Keeping a credit card for a long period of time does not always provide consumers with the greatest benefits. Customers can often get bonuses just for opening and using new credit cards.

Consumers who want to apply for a new credit card should do so before canceling one they no longer want. Canceling a credit card can lower a person’s available credit and credit score and make it harder to be approved for a new credit card.

What Factors Affect a Person’s Credit Score?

credit score factorsA credit score is a three-digit number that banks and lenders use to evaluate an applicant’s creditworthiness, or the likelihood that the person will repay his or her debts. A credit score is one of the most important pieces of information that many lenders use to decide whether or not to grant a loan or credit.

Several factors are used to determine a credit score. The formulas used by the different credit bureaus (TransUnion, Equifax, and Experian) vary in some ways, so the same person can have three different credit scores, but the main criteria are the same.

Credit Card Utilization: This compares the amount of credit used at a given time to the total amount of available credit. Total credit card balances are divided by the total credit card limits to calculate a percentage. Credit card utilization is based on a snapshot at one point in time, not on balances carried over from month to month.

On-Time Payments: One of the most important factors that determines a person’s credit score is whether or not payments are made on time. Making just one or two late payments can have a significant impact on a person’s credit score. Paying bills on time demonstrates that a person is responsible and reliable.

Derogatory Marks: Derogatory marks include accounts in collections, foreclosures, bankruptcies, and liens. Derogatory marks typically stay on a credit report for seven to 10 years and can have a significant effect on a person’s credit score.

Average Age of Credit Lines: This factor takes into account how long a person has had open credit cards, mortgages, auto or students loans, and other lines of credit. A lengthy credit history gives creditors more information to use to assess a person’s creditworthiness and indicates that an individual is able to responsibly manage credit. It is generally not a good idea to close an older credit card account, even if it is not being used, because it can shorten the average age of open credit lines. It can also reduce the amount of available credit, which can raise the credit utilization ratio.

Number of Accounts: This is the total number of credit cards, mortgages, auto and student loans, and other lines of credit. People with a high number of accounts generally have higher credit scores because they have been approved for more lines of credit. Having both revolving and installment credit can raise a person’s credit score. However, it is not recommended to open several lines of credit simply to raise a credit score because this factor carries less weight than others.

Hard Credit Inquiries: A hard inquiry occurs when a financial institution checks someone’s credit to decide whether or not to approve the person for a loan or credit card. A hard inquiry can lower a person’s credit score by a few points, but the effect is usually only felt for a few months. Several hard inquiries in a short period of time can lower a person’s credit score more because it can be a sign that the applicant is desperate for credit or cannot get approved. It is better not to apply for several lines of credit in a short period of time.

What Happens If a Customer Doesn’t Sign a Credit Card Receipt?

credit card receipt signatureSome merchants do not require signatures for small purchases made with a credit card, while others require a signature for any purchase, regardless of value. Merchants can choose their own policy in conjunction with credit card companies.

Visa and MasterCard allow some retailers, including grocery stores, to not require signatures for transactions under $50. The retailers are not liable for fraud charges in those cases. American Express and Discover do not require signatures for purchases under $25.

If a signature is required but a customer does not sign, Visa, MasterCard, American Express, or Discover can still process the transaction and add the charge to the customer’s monthly statement. If the customer is honest and accepts the charge as valid, there is no problem. However, some people dispute charges they made themselves and claim that the charge was fraudulent or the card was stolen.

A customer who does not sign a credit card slip is not agreeing to the terms of the credit card agreement. That person is in a good position to dispute the charge and get a chargeback, even if he or she actually did make the purchase.

Restaurants and bars are more likely than other businesses to fall victim to chargebacks after customers do not sign receipts. If the customer does not sign, the restaurant has no way of proving that the customer agreed to the price on the bill. If the customer disputes the charge, the restaurant can be forced to write off the cost of the meal. Restaurants that find themselves in that situation may have a “do not serve” list with the names of customers who disputed charges.

In some cases, not signing is a simple oversight on the customer’s part. Most customers are honest and do not dispute charges they made. They may forget that they made a purchase or not remember the name of the business but will accept the charge when they are reminded of what they bought. In order to prevent problems, it is a good practice for cashiers and servers to always check to make sure credit card slips are signed before customers leave.

Credit Card Fraud Is Changing

credit card fraudIn an attempt to reduce credit card fraud, many credit card issuers and businesses have been switching to EMV chip cards. These cards generate a unique code every time a card is used, rather than storing information on a magnetic stripe from which it could be stolen.

It is estimated that 13 million consumers were victims of identity theft fraud in 2015, a 3 percent increase over 2014. However, one particular type of fraud – new account fraud – doubled in the past year. While it is too soon to pinpoint the cause of the dramatic increase, some people think it could be related to the switch to chip cards.

Criminals used to steal credit card information and create fake cards that they would use to make purchases. The switch to EMV technology has made that nearly impossible. Criminals are now using other tactics, such as stealing people’s Social Security numbers and opening new credit card accounts in their names. New account fraud accounted for 20 percent of all losses related to fraud last year. It had declined for the previous three years.

These findings are not surprising. Many experts had predicted that EMV chips would not stop fraud altogether, but that criminals would just find new ways to commit crimes. It does not mean that introducing chip cards was a mistake, but rather that credit card issuers, businesses, and consumers need to find new ways to fight fraud. Detecting and fighting new account fraud is harder than disputing charges on an existing credit card.

Victims of data breaches are more likely to become victims of fraud than they were in the past. About 20 percent of data breach victims became victims of fraud last year. This is because many data breaches that occurred in 2015 involved the theft of Social Security numbers and other personal information that could be used to open new accounts.

Card-not-present fraud involving purchases made online or over the phone cost more than point-of-sale fraud last year. To fight back, merchants and banks are slowly switching to token-based systems to protect consumers.

There is some good news. Overall fraud has fallen from $23 billion in 2010 to $16 billion in 2014 to $15 billion in 2015. Existing card fraud fell from $9 billion to $8 billion last year.

Consumers can take some steps to protect themselves. Experts recommend that people check their credit reports at least once a year for new account fraud and check their credit card statements every month for unauthorized charges.

Pros and Cons of Applying for a Store Credit Card

store credit cardsPeople who shop at retail stores are often asked if they would like to sign up for the store’s credit card. You can receive immediate savings on purchases, but it can also affect your credit score. Here are the pros and cons of applying for a store credit card.

Customers who have store credit cards can receive coupons, discounts, special shopping days, and rewards. These can add up to significant savings. Cards that also carry a Visa, MasterCard, American Express, or Discover logo can be used at other stores and often carry additional rewards.

If you want to build or repair your credit history, applying for a store credit card and using it responsibly can be helpful. Retail stores are generally more lenient and accept applicants with lower credit scores than major credit card issuers. If you get a store card and keep the balance low, it can raise your credit score over time.

The main downside to applying for a store credit card is that they generally have high interest rates of 20 percent or more. If you carry a balance from month to month, you can pay more in interest than you save through discounts. Co-branded credit cards generally offer a range of interest rates, but regular store cards tend to have high interest rates for everyone, regardless of credit score.

Store credit cards tend to have low credit limits. It is easy to max out a card with a low limit. This can hurt your credit score and might even prompt your other credit cards to raise your interest rate. Try to keep the balances on all your cards below 30 percent of your credit limit.

Applying for a store credit card triggers a hard inquiry on your credit report, which can lower your credit score by 10 to 30 points. This will affect your credit score for several years and can make it harder to obtain a loan in the future or cause you to get a higher interest rate.

If getting coupons and ads will encourage you to buy things you don’t need, signing up for a store credit card can be too tempting. You might get into debt you cannot afford to pay at high interest rates.

If you are trying to build your credit history and trust yourself to pay your balances in full every month, having a store credit card can help your credit score over time. This can make it easier to obtain a car loan or mortgage in the future.

How Are Credit Cards and Charge Cards Different?

credit cards charge cardsBanks offer both credit cards and charge cards. Although they look the same and have similarities, there are some important differences.

If a consumer uses a credit card, the account holder can avoid interest by paying the balance in full or can carry a balance from month to month and pay interest charges. With a charge card, on the other hand, the balance must be paid in full every month or the cardholder will be considered to be in default.

Credit cards generally have a pre-determined spending limit. A cardholder can charge up to that limit and can request a credit line increase if he or she needs to make a larger purchase. A charge card generally does not have a pre-determined spending limit. A cardholder who wants to make a large purchase can call and get it preapproved. Cardholders generally do not know how much they are able to charge unless a purchase is denied.

A credit card has different rates and fees than a charge card. Credit card issuers can earn money by charging interest and can offer cards with no annual fee. Since charge card issuers do not charge interest, they usually charge an annual fee to cover the cost of doing business. Charge cards usually do not have promotional financing, balance transfers, and cash advances that credit cards often have.

Relatively few companies offer charge cards. Credit cards are much more common. Charge cards are generally offered to consumers with excellent credit histories, while credit cards can be issued to people with varying credit histories.

Credit cards and charge cards are both considered forms of credit, so a customer’s payment history is reported to the three credit bureaus. Cardholders can help their credit by making payments on time and hurt it by making late payments.

Both types of cards can offer rewards such as cash back, points, and miles. They can offer other benefits, such as travel insurance, purchase protection, and concierge services. Charge cards tend to have more features than credit cards since they appeal to customers with better credit.

Important Facts about Business Credit Scores

business credit scoreA commercial credit score, or business credit score, is a key piece of information that lenders use to decide whether or not to loan money to a company. Credit bureaus Equifax and Experian and commercial information firm Dun & Bradstreet calculate the scores.

Different companies use different formulas to calculate their scores. They look at factors such as current payment status, credit utilization rate, derogatory items, payment history, the age and type of business, the number of employees, and the number of inquiries. Each company generates scores using a different scale.

A business credit score predicts the likelihood of late payment by looking at a company’s credit history. It is applied in a similar way to how a personal consumer score is applied.

Businesses may decide whether or not to enter a financial arrangement with a company and on what terms based on its commercial credit score. Banks are most likely to use the scores to make decisions. Other entities that extend credit or deal with risk can also look at commercial credit scores. These can include credit grantors, lenders, credit card issuers, insurance firms, and leasing companies. Nonfinancial firms, such as manufacturers, wholesalers, and business service firms, also take commercial credit scores into account.

Making payments on time is the best way to improve a business credit score. Establishing trade relationships and keeping credit utilization rates down can also help. Collections, legal trouble, and bankruptcies can negatively affect a score. Business owners should also check their credit reports from time to time for errors.

A business owner’s personal consumer score can impact a commercial credit score. However, a business credit score does not positively or negatively impact a personal credit score.

How Can One Person Have Three Different Credit Scores?

credit score differencesThe three major credit bureaus, TransUnion, Equifax, and Experian, each calculate and report credit scores for consumers. These scores can vary significantly, even if they pertain to the same individual at the same time. There can be several reasons for these inconsistencies.

Most creditors report information to all three credit bureaus every month, but some lenders, especially small banks and credit unions, only report information to one or two. This can cause credit scores to be inconsistent. Third-party collections, especially those held by small collection agencies, may only be reported to one or two credit bureaus. Public record data, such as judgments, tax liens, and bankruptcies, are usually reported by regionally-based third parties and may not be reported to all the credit bureaus.

Errors can also contribute to differences in credit scores. A bank may not credit a payment, or two people’s information can be mixed. This is why it is important for consumers to check their credit reports at least once a year.

The timing of updates can also play a role. A credit score is a snapshot of a person’s credit at the time it is requested. It is not stored and retrieved. A score is recalculated when a request is made. If information has been reported to one credit bureau but not others, this can lead to discrepancies in credit scores.

All three credit bureaus look at the same types of information to create their credit scores: payment history, amounts owed, length of credit history, new accounts, and types of credit. However, they use different formulas that weight these factors differently. These formulas change from time to time, which can also lead to differences in scores.

It is important for consumers to access their credit reports once a year to check their scores and review them for accuracy. Inaccurate information can be detrimental to a person’s credit score and can affect the ability to obtain a loan or credit card.