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Credit Rules for Singles, Couples, Families, and Seniors

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You can't rush perfection, especially when it comes to credit scores. It's a fact-of-finances that the younger you are, the lower your credit score is likely to be.

No, it's not reverse age discrimination: It's simply because the length of your credit history -- the number of years you've been borrowing and paying back -- counts for roughly 15% of your overall credit score. (The other factors are payment history (35%), amounts owed (30%), new credit (10%), and types of credit use (10%).)

On average, here's how people stack up over the ages, according to CreditKarma.com data:

Average Credit Score by Age, September 2009

Age

Score

55+

724

45-54

685

35-44

659

25-34

652

18-24

638

Source: CreditKarma.com.

Of course, at The Motley Fool, we encourage everyone to set stretch goals and aim to be above average, no matter where you fall on the age-credit score spectrum. So I talked with credit expert John Ulzheimer about the best and worst credit moves to make at each life stage.

Singles: Get it right the first time
Colleges used to be littered with lenders offering easy credit (and a free T-shirt!) between classes. Even now in these days of tighter credit, you'll likely come across some offers for a small line of credit. If you pinky-swear to be adult about it, go ahead and take the bait.

As Ulzheimer points out, "Credit use isn't bad, credit abuse is." If you resisted the mountain of offers when you were young (or are divorced or new to the country) your file may lack enough data to be score-able. If so, apply for a retail credit card and soon you'll start getting offers for prime Visa and MasterCard accounts.

Proceed with caution: Without the luxury of an established credit history to buffer your bad moves, even a few late payments can be catastrophic, says Ulzheimer. Charge too much, make late payments (remember, punctuality accounts for 35% of the FICO scoring equation), or apply for too many cards, and your score will suffer. Be diligent when student loan payments come due. Defaulting is not an option. The loan won't be discharged in bankruptcy and will mar your credit report for years, even after you pay it off.

Opportunities ahead: Good credit conduct is amplified if you have a short track record. Lenders looking to earn early loyalty may even give you better offers than someone with more established credit. Play nice now and you'll recover faster from future rough patches.

Couples: Maintain the "you" in your union
Togetherness has its perks in the credit world. However, don't go overboard: Maintain some credit autonomy even if you share everything else except your toothbrush. Closing accounts established in your single days -- or failing to occasionally use those cards -- can result in a stagnant, unscore-able credit file in as little as six months.

Proceed with caution: "Chivalry and credit management don't necessarily go well together," Ulzheimer says. Credit scoring bureaus aren't as forgiving of your partner's money blunders, and those joint account flubs will show up on both of your credit files.

Opportunities ahead: You've now got two credit scores from which to choose when shopping for the best rates, and the option of joining financial forces to qualify for the love nest of your dreams. On the flip side, if you plan to use both of your incomes to qualify for a bigger loan, be aware that both of your credit scores will factor into the lending decision. So work on improving your scores well before you need to apply for a loan.

Families: Don't get buried by debt
Family life can be complicated, with big-ticket items such as mortgages and school tuition stretching households to the brink. Your credit needs to work in your favor to reduce the stress on your finances and afford you the best rates.

Proceed with caution: The types of credit (revolving credit, installment loans) you use have a 10% impact on your FICO score. But don't rely too heavily on credit as a bridge to a better life. (The amount of new credit you apply for is 10% of your overall score.) Avoid those tempting "no money down!" offers for furniture, electronics, and appliances. Financing company entries, says Ulzheimer, can make an OK credit file look iffy. The additional debt also has a long-term effect on your debt-to-available-credit ratio (30% of your FICO score is tied to credit utilization) since it remains stagnant until you pay down the balance.

Opportunities ahead: Teach your kids good credit manners. The penalty for ignorance is steep: a punishing seven to 10 years (the length of time most blunders linger on a credit report). One of the fastest-growing segment of bankruptcy filers are those between the ages of 18 and 22.

Empty-nesters/seniors: Keep your credit healthy
Don't sweat the gray hairs -- in the credit world you're better looking than ever. You've got a long history (15% of your score), fewer debt burdens, and a lifetime of assets. Unfortunately, what makes you attractive to creditors also makes you a bigger target for identity thieves.

Proceed with caution: You may not be shopping for a new home, car, or college loan, but that doesn't mean you should stop maintaining and managing your credit. "Remember, car and home insurance companies depend on credit scores to determine your premiums," Ulzheimer says. Older couples should heed the advice above about keeping active credit in their own names. When credit card companies get wind of a death, accounts are closed (and noted on the deceased's report), abruptly cutting off the surviving spouse's access.

Opportunities ahead: Besides bragging rights, you've got enough padding in your credit file to weather blips (a new credit inquiry or a sharp increase in your balances) like a champ. But don't get cocky: While the hurt of any mistakes will be minimal, remember that more recent behavior carries more weight than yesterday's news.

More ways to smartly manage your credit:

Dayana Yochim's credit score may have a few gray hairs starting to show, but she still likes to think it can pass for 29. In dim light. From a moving vehicle. The Fool has a disclosure policy.


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