Credit Repair by Age: Your Priorities

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Credit damage isn’t a generational problem. According to data compiled by Credit Karma, credit scores by age are as follows:

  • 18-24 years old: 630
  • 25-34 years old: 628
  • 35-44 years old: 629
  • 45-54 years old: 646
  • 55+ years old: 696

If age provides wisdom, why aren’t our credit scores following suit? A 40-year-old may know more about credit than a 20-year-old, but both are faced with a unique set of financial challenges. The key to credit improvement is a dynamic focus. Keep the following priorities in mind as you age. What you learn could shed new light on credit health.

Your 20’s

  • Learn the Five Factors. Building credit requires an understanding of the rules. There are five factors that determine your credit score: payment history, debt utilization, credit length, new credit and diversification. Click here to review the basics and learn a few strategies to begin your journey the right way.
  • Repay student loans. According to The Institute for College Access and Success (TICAS), 69 percent of college graduates left school with student loans in 2013. Their bottom line was $28,400, a huge burden for an entry-level salary. Sure, you have the option to stretch your loan for years or even decades, but consider the downside. Accruing interest will inflate the principal balance over time, lengthening the life of the loan and increasing the overall cost. Paying off your loans sooner means:
    • A lower credit utilization ratio
    • Opportunity for credit improvement
    • Less stress on your budget
    • More opportunity to save

Talk to a financial planner about the best payoff strategy.

  • Save, save, save. Speaking of savings, your 20’s is the perfect time to build long-term wealth. “But I’m so young,” you say. “I have plenty of time to save.” Perhaps, but consider this: Suppose you save $5 a day for 10 years. At a 10 percent return, you’ll earn $33,502. Now suppose you save $5 a day for 40 years. At the same rate of return, you’ll earn a whopping $633,181. While $33K could pad your bank account, $633K could change your life. Start early and save often. Allow youth to work in your favor.

Your 30’s

  • Balance debt. The credit elite know how to strike a healthy balance between debt and income. Make the most of both by eliminating revolving debt each month. Use your credit cards for everyday purchases and pay the balance in full before interest can accrue. When it comes to installment debt, maintain a mortgage that requires no more than 35 percent of your income and finance a car that favors affordability over the luxury. The bottom line: frugality is the name of the game. Protect your credit by keeping your debt under control.
  • Plan for emergencies. As your responsibilities grow, it’s important to plan for life’s emergencies. Maintaining six months’ worth of liquid savings will help you avoid credit damage in the form of:
    • Income loss
    • Medical debt
    • Home repairs
    • Identity theft
    • Family needs

Don’t leave your credit vulnerable to the unknown. Mitigate risk by funneling savings into an accessible account.

Your 40’s

  • Save for your child’s future. The cost of college is growing faster than inflation. If you plan to pay your child’s tuition, begin saving now. The result will help you avoid unnecessary parent loans, a higher credit utilization ratio, and carrying debt into retirement.
  • Establish passive income. Although retirement is still decades away, it’s important to establish early income strategies. According to the Federal Reserve Board, 19 percent of Americans between the ages of 55 and 64 have no savings at all. How will these people cope with income loss? Most will continue to work, survive on Social Security benefits, or worse, turn to credit cards for cash flow. If you haven’t saved enough, passive income can help you catch up and keep your retirement plans on track. Click here to review our three-part series about investment property. Planning early will protect your long-term credit health.

Your 50’s and beyond

As you approach retirement age, it’s time to review your assets and how the loss of income will affect your credit health. Establish safeguards by:

  • Paying off debts. Credit cards, mortgages, auto loans, student loans, etc. Low debt equals low risk in retirement.
  • Minimizing dependents. If your adult children still live at home, it’s time to have a conversation about the future. Create a move-out plan that will prevent your children from relying on you during retirement.
  • Saying no to cosigning. Now is not the time to lend out your credit score. Review our reasons for keeping your financial health under wraps.

The Bottom Line

Credit is valuable at every age, and it’s vital to shift your focus with your needs. Analyze your strengths and weaknesses on a regular basis. The result will help you maintain positive credit throughout the years.