Why older Americans can struggle to get credit cards

Whether it’s to earn rewards on vacation or just fund everyday purchases, there is a great demand for credit cards among seniors.

According to an Experian EXPGY credit bureau report,
+ 1.78%
, baby boomers (those born between 1946 and 1964) held an average of 4.8 credit cards in the second quarter of 2019, more than any other generation mentioned in the report.

You would think that a senior’s chances of getting a new credit card approved would be relatively high. It’s a demographic that has had more time to build long credit histories, pay off mortgages, and borrow responsibly. The Equal Credit Opportunity Act even prohibits creditors from discriminating against a claim on the basis of age.

If you fall into this demographic, however, there are several reasons why it might be difficult for you to get approved for a new credit card. Here’s what could influence your creditworthiness and what you can do about it.

Why seniors might be denied credit

Less income

During the credit card application process, you will be asked to declare your annual income or income to which you have reasonable access; the bank must make sure that you are able to repay what you charge.

If you are retired, you may be living on less since you no longer have that stable employment income, which can affect your chances of approval.

The good news is that you can count on more income than just a traditional salary, including things like:

  • Social security benefits.

  • Income of a spouse or partner.

  • Investment and retirement income.

  • Part-time or seasonal jobs.

  • Dividends and interest.

Thin or “ invisible ” credit reports

If you’re an older American who has worked hard for many years to pay off your mortgage and reduce your daily expenses, you might not think your credit scores matter much more. But you can be rudely woken up when you incur a large unforeseen expense, want to downsize an apartment, or try to open a new travel rewards credit card to boost a retirement trip. Credit scores do indeed always count, and certain factors can work against you.

In order to even have a FICO FICO,
+ 0.40%
credit score, you must report credit activity to the US credit bureaus at least once every six months. In addition, this active line of credit must be at least six months old.

Also read: Inflation is low now, but still poses a significant threat to the financial security of retirees

So, if you are completely debt free – say you paid off your house, car, and other loans a long time ago and haven’t had any other credit activity for a year or more – the bureaus may simply not having enough information. about you. Your credit report may be too thin.

According to a 2019 analysis from the Equifax EFX credit bureau,
+ 1.01%
, approximately 91.5 million consumers in the United States do not have a credit report or do not have enough information on their records to generate a traditional credit score.

Bad “ credit mix ”

Even if you’re an older American who actively uses credit cards and pays them off on time and in full every month, that doesn’t guarantee that you’ll be approved for your next card. In fact, if you only have credit card accounts on your credit report, but no installment accounts like mortgages or car loans, it can hurt your credit scores.

This is because credit scoring models also like to see a “credit mix,” that is, a variety of accounts that show you have experience with different types of borrowing. There are two basic types of credit:

  • Turning: Does not have a defined end date or consistent balance. The most common types are credit cards and home equity lines of credit.
  • Payment: Installment loans have fixed end dates and require a standard monthly payment. Mortgages and auto loans are the best examples.

If you have a long credit history of on-time payments as well as low use of credit, so not having a credit mix is ​​unlikely to be enough to improve or break your creditworthiness. But the lack of a credit mix could lower a score limit and make it difficult to qualify for a new credit card.

Cosign the pitfalls

Have you agreed to co-sign a personal loan for your son or student loans for your granddaughter? Your generous help may have had unintended consequences on your credit scores.

Read more: COVID-19 has revealed this trait among retired Americans

More: I’m a “ young 68 ” with $ 3,200 a month on Social Security and don’t want it taxed – where should I retire in northern or western Colorado?

When you co-sign a loan, your loan and payment history appears on your credit reports as well as the borrower’s. If the person you co-signed for fails payments, your score will be negatively affected.

Even if the person you co-signed for makes all of their payments on time, the loan could still be charged to you. Indeed, it can constitute a debt obligation which leaves you too little disposable income to be entitled to a line of credit in the eyes of the issuers.

5 Ways Seniors Can Increase Their Chances Of Credit Card Approval

Even if you’ve paid off your mortgage, have a thin or invisible credit history, or have never used a credit card, there are still ways to improve your chances of getting a new credit card.

  • Check your credit report: Regularly pull your credit report to make sure there are no errors. A credit card issuer may have incorrectly reported a late payment, or your report may show accounts that don’t belong to you at all. If you find something wrong, immediately dispute the errors. Make sure you continue to monitor your credit regularly.
  • Become an authorized user: If you have a loved one with a strong credit history, ask if they will consider adding you as an authorized user on their credit card. The issuer will send the primary account holder a card with your name on it, and you can benefit from their good credit. It may not be enough to have a huge impact on your credit scores, but it could give you a bump pretty quickly.
  • Create a credit with a secured credit card: A secured credit card acts like a regular credit card in many ways, with one key difference: it requires an initial deposit, which acts like your credit limit and protects the card issuer in case you aren’t. able to reimburse what you charge. Use a secured card to help boost your credit in the short term, then switch to a traditional credit card once your credit scores are in better shape.
  • Consider a credit building installment loan: A home equity loan holds the amount you borrow in a bank account while you make the payments. You usually won’t be able to access the money until you pay off the loan, but these payments are reported to at least one of the credit bureaus. This can not only improve your credit scores, but it can also increase your credit mix.
  • Do not close long-held accounts: If you have a credit history but are trying to improve it, avoid closing cards that you have held for years. The length of your credit history and the average age of accounts are factors in your credit scores. Keep your oldest accounts open, but watch downgrade cards if they have an annual fee, it is no longer worth it.
More from NerdWallet:

Leave a Reply

Your email address will not be published.