Maintain Your Credit Health by Acting Your Age

Financial Goals

photo: BigBeaks

What you do with your money in your 20s, when you’re fresh out of school and establishing good credit, is very different from how you handle it in your 40s, when you’re planning for retirement and your kids’ college tuition. How to best manage your credit and finances? According to experts, it’s as easy as acting your age.

Your 20s: Get Out of Debt

“In your 20s, the key challenge is learning to live within your means and avoid credit card debt like the plague,” says Manisha Thakor, co-author of “On My Own Two Feet: A Modern Girl’s Guide to Personal Finance.”

First things first: Open up a credit card and establish “good habits like monitoring your credit report annually and paying credit card balances on time,” says Jonathan Gassman, director of tax and wealth management at Gassman & Golodny. “Timeliness of payments makes up 35% of your credit score,” Thakor says. “You may think a late payment is no big deal… but it really is!”

Your 30s: Save and Accumulate

Life is probably coming at you fast, Thakor says. “Avoid the temptation to open up lots of credit cards, as it can adversely affect your credit score. Roughly 10% of your score is based on the number of recent credit applications.” If you’re in the fun stage of shopping for a home mortgage or car loan, make sure all those inquiries are made within a short time period.

Although human resources consulting company Hewitt Associates reports that close to one-third of 30- to 39-year-olds don’t have a 401(k)—say it ain’t so!— expert after expert agrees such an investment plan is a must. Wes Moss, director and chief investment strategist at Capital Investment Advisors in Atlanta, Georgia, recommends that 30-somethings invest 10% to 15% of their income in a 401(k) – “the more, the better,” he says. We know putting your money away can be painful, but if your employer offers a match, fund your 401(k) so you at least qualify for the maximum matching benefit.

Your 40s: Plan for the Future

“Forty is the new 20,” says Gordon F. Homes, senior financial planner at MetLife. “Most people continue changing careers and jobs and even homes throughout their 40s and 50s,” he says. “Don’t forget to manage your retirement savings from previous employers, either at that employer or by consolidating those accounts into a traditional or Roth IRA.”

You may have stopped caring about your credit score once you bought your first home, but if you plan to take out a car loan or a home equity loan, you still have to monitor your credit score on a regular basis, says Homes. No slacking off now.

Your 50s: Focus on the Long-Term

By this stage of life, you probably have several types of debt, including credit cards, a mortgage, and car loans. That’s not necessarily a bad thing, says Thakor. About 10% of your credit score is impacted by the diversity of loan types because lenders want to see that you can manage different types of debt.

If you want to dial down your debt, consider downsizing your home. “Selling a primary residence where you have lived for at least two of the past five years may entitle you to a capital gains tax break on the profit,” says Judy Ward, a senior financial planner with T. Rowe Price.

Your 50s are also a great time to purchase a long-term care policy because you can get a better premium now than later. “Medicaid’s coverage of long-term care doesn’t kick in until you’ve exhausted nearly all of your savings,” warns Homes. “And while Medicaid covers nursing home care for people who qualify, coverage of in-home health services is limited, and Medicaid usually does not cover assisted living.” What’s that saying about the early bird?

Your 60s: Get Ready to Retire

Don’t close those credit cards yet, because the length of your credit history still accounts for about 15% of your score. “While I’m all for paring down, keeping your longest running credit card open is a good way to keep your credit score in good standing,” says Thakor.

You may have to consider delaying retirement, especially if your nest egg has been hard-hit by the stock market plunge. Also, holding off on Social Security can increase your benefit by approximately 7% each year you delay taking it from ages 62 to 66, says Homes.

Now that you’ve got a financial road map, do what you can to get and stay on course now and later in life. Your golden years will thank you.

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