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

Today, I’m talking about the biggest factors that determine your credit score. I’ll briefly explain each one and talk about how much each factor weighs into your overall credit score. So let’s jump in with the first and weightiest factor that impacts your credit score: 

1. Payment history. This makes up roughly 35% of how your credit score is determined. And when you think about it, it becomes obvious. The whole purpose of a credit score is to provide a shorthand way for lenders (who don’t know you) to figure out if you’re actually going to pay back the money they’re loaning you. If you have a history of paying off your debts on time, that’s a good indicator that you’ll pay off new and current debts too. So if you pay off your debts on time, and you don’t have any liens or other dings to your credit like lawsuits or foreclosures, you’ll be off to a good start with this most important factor of your credit score.
2. The second biggest factor 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, lower credit usage compared to your overall limit is what you want here. This one makes up about 30% of your credit score, so it’s an important factor to consider if you’re trying to improve your credit score. 

After these first 2, the factors drop off significantly in their weight and influence on your credit score. Next is length of credit history or how long you’ve been using credit. This makes up about 15% of your score and shouldn’t be a problem for most retirees who have likely been using credit for decades. 

New credit makes up 10% of your credit score. If you’ve recently applied for 2 new credit cards and a new car loan, you may see a drop in your credit score, because it’s not a good sign to be taking on new debt, especially multiple debts at one time. So the next time the retailer offers you 20% off for applying for the store credit card...just say no. 

Your credit mix makes up the last 10% of your credit score. Generally it’s good to have a variety of loans like mortgage, credit cards, car loans, etc. The added variety shows that you can juggle these different loan types and thus, you’re a lower risk for lending money. I think it’s important to note, however, that it’s not wise to add new credit types in an effort to boost your score. It’s not a big factor, so it won’t hurt you that much if your credit score is a bit lower because you don’t have a wide variety of debts. 

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