About a third of U.S. “baby boomers” who are entering retirement in record numbers, or already there, could be hurting their credit scores by ditching credit cards.
According to a recent survey from TransUnion, one of the three major credit reporting agencies, about 34 percent of U.S. consumers between the ages of 51 and 70 are actively reducing their reliance on credit cards.
While that is a smart way of reducing overall debt, it’s a practice that should be carefully thought out and measured. Ditching credit cards entirely amounts to behavior that may actually result in account closures and ultimately, credit score reductions, TransUnion and most financial advisers will tell you.
TransUnion added that a concurrent analysis of its proprietary consumer data found that 20 percent of people in that age range already have subprime credit.
“Well-intentioned baby boomers are putting themselves at risk by snubbing their cards,” says Heather Battison, Vice President of TransUnion. “Card providers may close unused accounts due to inactivity, which negatively impacts consumer credit. A better approach is to continue to use existing credit cards for small purchases and pay off the balance in full and on time each month.”
TransUnion offers the following tips to help consumers of all ages build and maintain credit health, including boomers in their retirement years. They include:
Use it or lose it: Even if you are trying to reduce spending overall, it’s important to continue making small, manageable charges to your active cards to preserve access to credit. Unused card accounts can close due to inactivity, which can have a negative credit score impact.
Cautiously co-sign: 56 percent of survey respondents understand co-signing requires good credit, but what they may not know is that co-signing on a loan for a family or friend can negatively affect credit scores. Co-signers are on the hook for timely loan repayment, so any missed payments – even for someone else’s loan – can hurt a credit score.
Eliminate debt: boomers have an average of $99,852 in debt, according to TransUnion’s consumer credit database. Focus on paying off debts in a timely manner to avoid racking up interest payments, and preserve funds for the timely repayment of any loan or credit card bills.