You’ve spent your whole life managing your money with flawless proficiency. You have a sparkling credit score and very little debt. But is it possible to get to a point where you have so little debt that you could actually fail to register a credit score?
For senior individuals who have paid off most of their major debts, such as home and auto loans, and don’t use credit cards or store retail credit on a regular basis, the possibility of becoming "unscoreable" exists. This can happen because credit score models rely on recent credit activity in order to generate an accurate score. If all recorded credit activity has stopped, then there’s no recent information to use as the basis for a credit score. As a recent Experian study points out, older individuals tend to have better credit scores, so it’s important to do what you can to sustain yours.
Why is having a credit score
important for seniors?
If you’ve paid off your mortgage and have plenty of savings on hand to last you the rest of your life, you might wonder why maintaining a credit score would be important. Although you may not be planning on taking out another home loan or making other major purchases on credit, you may need a score for other life events, such as:
* Financing unexpected needs
* Applying for rental housing if you plan on selling your house and downsizing
* Establishing an account with a cellphone provider or other utility
* Acting as a co-signer on a loan
* Entering into a reverse mortgage
How to avoid becoming "unscoreable"
While it may seem logical to close accounts that you don’t use or need, you can keep your score active by maintaining them. This is especially important if you’ve paid off your mortgage and auto loans.
VantageScore, which has the ability to provide a credit score to a broader population of consumers with limited credit histories, recommends keeping at least one credit card active. It’s a good idea to use each of your accounts at least once every 24 months so that your payment data gets reported to the three national credit reporting companies (CRCs) – Equifax, Experian and TransUnion. You can avoid incurring interest simply by paying off your balance after making a purchase.
If you want to close out credit card accounts, it’s best for your credit profile if you keep the oldest accounts active. Credit score models put greater emphasis on the older credit accounts in your credit files because it demonstrates that you have a reliable history of on-time payments.
What to do if you find yourself without a credit score
If you end up in this situation, VantageScore recommends opening a secured credit card, which is a credit card that includes a deposit. Be sure the card issuer reports payments to the three major CRCs. Some of these cards convert to a regular credit card after a certain period of time.
Another option is to work with a lender that offers manual underwriting, or one with whom you already have an established relationship and knows your finances. Some of the major lenders have the ability to issue credit the old-fashioned way by reviewing your credit files and other data to determine the specific terms if you qualify for a loan. Here again, be sure to work with a lender that is reporting payments so you can re-populate your credit files.
Once you begin rebuilding your credit, you will actually become eligible to receive a VantageScore credit score as soon as one month after a lender first reports your payment information to the CRCs, though for other models this timeframe could be as great as six months later.
Doing what you can to maintain the credit score you’ve worked so hard to establish over the years is important. If you do end up without a credit score, know that anyone – especially someone with a solid financial history – can rebuild their credit by taking a few easy steps.