A Gen X’s Guide to Credit Scores

Members of Generation X (Gen X), born between 1965 and 1980, have experienced the impact of credit scores on their financial lives.

With an average score of 706, many Gen Xers have juggled credit cards, loans and lines of credit throughout their adult lives, balancing caring for their children, parents and weathering various financial waves.

As they near retirement, Gen Xers are still feeling the financial squeeze from previous years of economic instability. With their kids’ college tuition, care for aging relatives and other expenses, Gen X is rightfully called the “Sandwich Generation” by economists.

If you’re a Gen Xer, no matter your financial situation, your credit score can greatly impact your finances now and as you move into retirement.

Here’s how you can use — and boost — your credit score to your advantage.

What your credit score means to you

Gen Xers are not newbies to credit scores. Mortgages and credit cards play a large role in Gen X’s finances, with 55 percent of Gen X members surveyed by Bankrate carrying credit card debt from month to month.

If you’re a member of Gen X, your credit report likely has a longer history, having several years to have accumulated entries, which can work in your favor. It’s also had more time to accumulate — and drop — negative remarks over the years.

You’ve probably also seen how credit scores have evolved in usage and importance over time. Whereas a credit score was once solely used by lenders to evaluate potential borrowers’ creditworthiness, it’s now used as a benchmark for everything from insurance premiums to rental applications.

As a Gen Xer, your credit score will continue to have an impact on your life through the loans you take out, the cards you carry and your everyday finances.

What your credit score impacts

Your credit score can affect your finances beyond qualifying for loans. As you navigate your finances in your later years, here’s what your credit score can impact.

Refinancing or cashing out on equity

Refinancing can allow you to change the payment terms on your mortgage, get a better interest rate or cash out on the equity in your home.

While the requirements to refinance your mortgage will vary from lender to lender, in general, you want to make sure your credit score is as high as you can get it when you refinance.

When you refinance, you’re replacing your old mortgage with a new mortgage, which necessitates a credit check and the underwriting process. Your lender will require you to have a minimum credit score to refinance — 620 for conventional loans — and will offer better interest rates if your credit score is on the higher end.

With a lower interest rate, you can save money each month on your payment. You can dedicate more cash to your principal and pay off your loan faster or have a more affordable payment that allows you to save and invest on other goals, such as your retirement.

Co-signing for loans

Co-signing for a loan can allow an individual with no or poor credit to borrow money and build their credit history.

This can be helpful for a relative or a child to take out loans for school or a car. However, there are requirements and risks associated with co-signing for a loan.

When co-signing a loan, your credit history will be used to determine whether the loan will be accepted and what the loan terms are. Like with a regular loan, you’ll typically need a minimum score to qualify. The better your credit score, the better loan terms you’ll be offered.

If you have an excellent score, you’ll be offered a lower interest rate, which can save you and the primary borrower money on interest and monthly payments. This can also help your primary borrower pay down the loan more quickly.

Putting a relative into a care facility

If you’ve been considering putting a loved one in a nursing or assisted living home, you’ll want to have a good credit score.

Prospective residents entering a care facility may undergo a credit and background check to determine whether they are able to pay the monthly cost. If you will be paying for this care, you may also undergo a credit check.

Having a good credit score and clean report will help prove to the care facility that you’ll be able to make the payments and will take responsibility if the resident is unable to pay.

Insurance premiums

Car, house and life insurance companies can consider credit scores when calculating premiums. Depending on your credit score, this can either save you money or cost you more.

Like with loans, the higher your credit score, the more you save. Individuals with a poor credit score (300 to 580), on average, pay twice as much for their annual car insurance premiums than those with excellent (800+) score.

When applied across all the insurance premiums you may be paying, having a good credit score can save you thousands of dollars a year.

Credit card debt

Credit card debt is becoming increasingly common for members of Gen X, especially as many have had to rely on their cards to cover an emergency expense in the past.

Credit card debt can impact your credit score by virtue of contributing to your utilization ratio and your payment history. In turn, your credit score can impact your credit card debt — namely, how much interest you pay and how you can modify your debt.

Having a good credit score can make your APR more affordable. Card providers will offer lower interest rates for borrowers with a higher credit score, especially if you negotiate with your card provider.

You’ll also have more options to modify your credit debt if you have a good score. If you’re able to get a better overall APR by consolidating your credit card debt or taking out a personal loan and paying off the balance, you can save on your monthly payments.

Another option is to take out a balance transfer card. Balance transfer cards offer a 0 percent APR rate for the introductory period, allowing you to save on interest while you pay down the balance. If you pay off the debt in full before the introductory period ends, you can substantially save on your monthly payments.

Balance transfer cards generally require that you have a good or excellent credit score, which is why you’ll want to boost or maintain your score before you apply.

What to watch in your credit score

Keeping an eye on the key areas of impact in your credit score can help you catch what’s holding you back and see where you can improve your score the most. Here’s what you need to keep an eye on.

Your utilization ratio

Your utilization ratio accounts for 30 percent of your FICO score, and includes all running balances on your revolving credit lines.

For example, if you have a total balance of $5,000 across all your credit cards, and a total of $10,000 in credit lines across all your cards, your utilization ratio is 50 percent.

Depending on how you use your credit cards, your utilization ratio will change from month to month. If you regularly max out your cards or carry a high balance from month to month, your utilization ratio will be high. If you spend below your limits and have a low balance relative to your available credit, your utilization will be low.

A high utilization ratio will work against you, since lenders prefer to see that you’re not regularly maxing out your cards or carrying a large balance. If you pay off your balance each month, you’ll see your score improve. However, if you’re carrying a large balance that you don’t pay off regularly, your score will take a hit.

There are a few ways you can improve your utilization ratio, both by keeping your balance low and by increasing the credit available to you.

Paying off your balance each month will help you from accumulating debt and from spending too close to your limit. It can be helpful to treat your credit card like a debit card, and only make purchases that your monthly income and savings can pay for.

If you have a running balance, paying off your debt as quickly as possible will keep your utilization low and save you money on interest in the long run. You can also increase your credit limit by applying for a new card or requesting a limit increase from your credit card provider.

Adding a new card to your lineup — so long as you can pay it off and plan to use it responsibly — will increase your credit limit. At the same time, you should be careful about closing old cards, as the available credit they contribute to the pool will impact your ratio when removed.

If you’ve gotten a raise, seen an increase in income, have been a loyal customer for your card provider and make your payments on time, you can also ask your lender for a credit line increase.

Co-signed loans

As a co-signer for a loan, you’ll act as the guarantor, which means you agree to pay back the loan if the primary borrower cannot make the payments.

Missed payments will be reported on your history alongside the borrower’s, as will the loan going into default or ending up in collections.

If the primary borrower makes their payments on time, however, they will be counted as positive remarks on your history, and help boost your score alongside the primary borrower.

If you’ve co-signed for a loan, it’s a good idea to keep an eye on both your credit score and on the loan payments, and make sure that a late payment won’t damage the score or send the loan into default.

Authorized users

Adding someone as an authorized user on your credit card can allow them to access a line of credit, take advantage of card perks and build a credit history. Families can streamline their expenses and pool card rewards this way; plus, it’s a great way to help younger family members establish a credit score.

The primary cardholder is in charge of making the payments on the card, and can grant or revoke access for authorized users.

Any purchases cardholders make will also contribute to the overall balance, which means that the primary cardholder will have to watch their utilization ratio and make sure the balance is something they can reasonably pay.

Old report items

When you’ve had your credit history for a long time, it’s a good idea to check your credit report for old items that may be out-of-date or incorrect.

While positive history will stay on your report for as long as the account stays open, negative items will come off of your report after a certain period of time. Missed payments, for example, will come off of your report after seven years, while hard inquiries will only stay on your report for two years.

False or inaccurate entries may also drag down your credit score without your knowledge. Old debts you’ve paid off, falsely reported missed payments or entries with wrong information around the balance, date or address can do unseen damage to your credit.

You can dispute these entries yourself, or you can use a credit repair service to comb your report and dispute the entries on your behalf.

Preparing for retirement

As you approach retirement, you should give your credit score and report a review. Keeping your score high can make saving for and going through retirement easier for a multitude of reasons.

Having an excellent credit score can save you money on loan interest and insurance premiums, allowing you to dedicate extra funds to your retirement savings.

Even as you pay off your loans, it’s a good idea to work toward and maintain an excellent score. You may want to take out a loan in retirement to supplement your income or cash out on your home’s equity, which will be easier the better your score.

Having a credit card or two can also be helpful, especially if you want to access card perks or travel, as a credit card will be required to book a hotel or rent a car.

How to boost your credit score

Boosting your score is achievable at any point in your credit history, whether you’re just starting over after a bankruptcy, want to improve a middling score or want to get your score to a perfect 850.

Here are a few of the ways you can boost your score:

• Keep making payments on time. Your payment history is the most important part of your credit score. Missing a payment or letting a debt default can have a devastating effect on your credit, so be sure to prioritize your loan and credit card payments. If you’re having trouble paying, consider deferral or loan modification.
• Pay down debt. Paying down your debt will not only keep your payment history positive, but it will also improve your utilization ratio and establish to lenders that you’re a trustworthy borrower, getting you better terms when you refinance or take out another loan.
• Keep your card balance low. Lowering your utilization ratio will help your score over time. You can do this by paying off your card balance each month, paying down existing credit card debt or asking for a credit limit increase.
• Be wary of getting rid of older cards. If you still have one of your first credit cards on your account, keeping it around can help your credit score. You’ll have more credit available, and it will contribute to the average age of your credit score.
• Review your credit history. Reviewing your history on a regular basis can help you catch inaccurate entries, watch for late payments and make sure everything is up-to-date.
• Monitor co-signers and authorized users. Missed payments on a co-signed loan can easily tank your credit, and several charges on an authorized card can quickly add to your card’s balance. Make sure your co-borrower is able to pay their bills on time, and keep a close eye on your card balance to make sure your utilization ratio isn’t getting too high.

Establishing these habits, even late in the game of credit, can go a long way to boost your score and prepare your credit history for your later years.

Tools for boosting your score

Apps, online tools and credit-boosting services can all help you increase your score. Here are some that may be useful.

Tools to view your score

Knowing your credit score is an important part of improving it. There are several ways you can view your credit score and report through both the credit bureaus and third parties.

Each of the three credit bureaus — Equifax, TransUnion and Experian — allow you to request your score and report for free once a year. You can also sign up for one of their paid services to see your score continually and receive updates.

Your bank or credit card provider may also offer a way to view your credit score through your mobile device or online account, allowing you to frequently check in on your score.

Finally, if you’re working with a credit monitoring or repair service, you’ll receive frequent updates on your score and history and can view your score through your account with the service.

Tools to pay down debt

Paying down debt can help you boost your credit score, as it establishes a positive payment history and, in the case of credit card debt, lowers your utilization ratio.

There are a few ways you can pay off your debt. Debt repayment methods like the snowball or avalanche strategy can pay off your balance more quickly than making the minimum payment.

Speaking to a credit counseling service can help outline a plan to pay off your debt, and as well as speaking to your lender to come up with a repayment plan that works for you.

Credit monitoring and repair

Credit monitoring and repair can help you clean up your credit report and alert you to new entries that can hold you back. It can be a useful tool if you’ve undergone identity theft, a bankruptcy or otherwise want to clean up your credit history.

Credit monitoring services will watch your credit report and notify you of new entries on your report that may damage or change your score, including new inquiries, missed payments, lawsuits or accounts opened in your name. You can also receive alerts about data leaks or instances of your personal information being sold without your consent.

Credit repair services take it a step further by helping you get false and inaccurate entries off of your credit report. Lexington Law, for example, will pair clients with a team of attorneys and legal professionals who know how to track down false entries on your credit report, file a dispute and quickly resolve any issues with the credit bureaus.

This way, you can expect a speedy cleaning of your report and clear out entries that might be holding you back, including old debt, misapplied payments and other issues that can accumulate on a long credit history.

The bottom line

While the financial landscape hasn’t always been easy to navigate for Generation X, members of this age group can use their credit history as a way to get a leg up as they support their family, prepare for retirement and otherwise save for the future.

Boosting your credit score can bring you a myriad of benefits as a Gen Xers. By focusing on key areas of impact, paying down debt and keeping your credit history clean, you can smooth out some of life’s financial bumps with an excellent credit score.