June Newsletter, 2008

Factors That Can Damage Your Credit Score

If you want a good rate on a car loan or mortgage, you need a high credit score, right? There are some surprising factors that can do some serious damage to your credit score. Here's a list, courtesy of personal finance experts Ken and Daria Dolan:

The first surprising way to hurt your credit score: Parking tickets and library fines. That $3 late fee from the library can single-handedly lower your credit score. In fact, a lot of local agencies report unpaid fines to collection agencies, and your payment history counts for a whopping 35% of your score. So, pay up!

You credit score can also drop if you're too responsible with your money. In other words, you don't charge anything, or you pay off your balance in full every month. That's a problem because 10% of your score is based on how consistently you pay off what you owe. In other words, they want to see that you can carry a little bit of debt, and pay it off. So, every so often, pay all but $20 on your bill, and pay the entire balance the next month.

Another unexpected way to hurt your credit score: Consolidating debt onto a low-rate card. If you're carrying balances on several cards, you might be tempted to transfer everything to a low-interest card to save money, and cancel the other cards. Don't do it! 30% of your credit score comes from the percentage of credit still available on your cards. By consolidating, your available credit will drop drastically. Instead: Keep your balance under 25% of your credit limit. For example, if your card has a $1,000 credit limit, don't charge more than $250 on it.

One final way to hurt your credit score: Taking too long to shop for a loan. If you're looking for the best rate on a mortgage or car loan, do all your comparison shopping within 14 days. Why? Every time a bank or lender checks your credit rating, it counts as an "inquiry" and stays on your report for two years. If you have too many inquiries, it looks like you're about to open several new lines of credit, so your score drops. If you do your comparison shopping in one 14-day period, it will count as just one inquiry and your credit score won't be negatively affected.

Seniors Increasingly Facing Bankruptcy

By CHRISTINE DUGAS, USA Today

Swamped by debt and rising medical bills, elderly Americans have been seeking bankruptcy court protection at sharply faster rates than other adults, a study to be released Tuesday indicates.

From 1991 to 2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150 percent, according to AARP, which will release the new research from the Consumer Bankruptcy Project. The most startling rise occurred among those ages 75 to 84, whose rate soared 433 percent.

The study did not address the specific reasons behind the trend. But experts say medical bills have played a major role in the debt that has forced many elderly Americans into bankruptcy proceedings.

"Health care is a big issue for the elderly," says George Gaberlavage, director of consumer and state affairs at the AARP Public Policy Institute. "And out-of-pocket expenses have been going up."

As a result, Gaberlavage says he thinks health care is the single biggest cause of the rise in filings.

During the same 1991-2007 period, bankruptcy filings by younger Americans actually declined.
The 2007 statistics are based on a national sample that included 2,435 responses from bankruptcy filers. It's the first in several Consumer Bankruptcy Project reports supported by AARP, which will later study and spell out the individual factors behind the increase.

The number of personal bankruptcy filings for all age groups declined after a stricter new law took effect in 2005. Still, when the filings from 2007 were compared with those from 1991, those of older Americans, as a percentage of all filings, have surged.

"In past generations, older Americans were more financially secure," says Elizabeth Warren, a Harvard Law professor and co-author of the Consumer Bankruptcy Project study. "Now, instead of going into retirement loaded with assets, Americans are hitting their retirement years loaded with debt."

In previous decades, Warren notes, Social Security helped lift millions of older Americans into a solidly middle-class life. But now, with the rising cost of food, drugs and housing, Social Security often doesn't go far enough.

For the elderly, bankruptcy is a particular concern because it's typically harder for seniors, usually lacking in well-paying job opportunities, to climb back out of it.

"They have so little time to start over and build up savings, and they have few or no job opportunities," says Susan Reinhard, director of the AARP Public Policy Institute. "The connection between health and economic security is a big issue for older Americans."