The theme this week on the One Minute Retirement Tip podcast is: improving your credit score after age 60

Today, I’m talking about how to use the 2nd biggest factor of your credit score to your advantage. As I talked about yesterday, the most important factor in your credit score is payment history. A close second, making up 30% of your credit score is your amounts owed vs your overall borrowing limit, aka your credit utilization ratio. 

In other words, how much of your credit available have you actually used. If you have $50,000 of available credit across multiple credit cards, but you’re only using $5000 of that at any one time, that’s going to be better than someone who’s racking up charges close to their credit limits each month. Even if you’re paying off your credit cards in full each month and your payment history is consistent, lower credit usage compared to your overall limit is what you want here. 

This brings me to the listener question that inspired this week’s theme. Anonymous writes: “I am 53 years old. I have paid off numerous car loans. I have paid off numerous credit cards. I have paid off my house mortgage.  I currently have a net worth of about $1.6 million. I’m still working, not yet retired. I have two credit cards. Each has a $10,000 limit. One of my credit cards has a $3500 balance and the other credit card has a $9000 balance. My current credit score is 725. This seems awfully low for someone with a credit history such as mine.”

I agree, it does seem low for someone who has very little debt compared to his overall net worth, and the fact that he has demonstrated that he can pay his debts, especially mortgage debts should give Anonymous an excellent credit score. 

However, in his case I think the culprit lies in his credit utilization. He is doing ok with the one credit card at 35% of the total credit limit, but using 90% of his available credit with the other card. The recommended amount of credit utilization is below 30%, so with a $10,000 credit limit, he shouldn’t go above a $3,000 balance on each card. 

High credit utilization indicates a propensity to overspending, but one of the downsides of the credit score is that it doesn’t capture the full picture. Anonymous’ net worth and low debt relative to net worth demonstrate that he’s not a big spender. 

The good news is that it’s probably going to be relatively easy for Anonymous to boost his credit score, simply by applying for higher limits and staying well under those limits with his spending. I would recommend paying down some of that debt before applying for a higher limit, but it’s likely that Anonymous will get approved for this higher limit and will see his credit score improve. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance