By law, banks cannot consider age when they make a credit decision. However, other factors can often impact senior citizens
If you’ve been turned down for a credit card as a senior citizen, maybe you’ve wondered if your age was the reason.
By law, it shouldn’t be. Under the Equal Credit Opportunity Act, banks cannot reject your application because of your age. They can’t discount your income just because it comes from Social Security or pensions, and they can’t consider that your income may decline because you are about to retire. The law also says creditors can’t impose different terms – such as a higher interest rate or fees – based on your age.
However, senior citizens are often affected by other factors that come into play when banks decide whether to issue a credit card, experts say. Paying off your mortgage, for example, or not getting a regular paycheck in retirement can influence your credit score.
“When I worked at FICO, this came up a lot,” says credit scoring expert Barry Paperno, former consumer operations manager at the company that created credit scoring, who now writes the “Speaking of Credit” column for CreditCards.com. “I talked to a lot of seniors who were just indignant that they got turned down. They’d say to me, \u2018This can’t be right. I’ve had perfect credit since before you were born.’”
Les Briney can relate. The 73-year-old from San Diego says he had never been denied a credit card in his life. But when he recently applied for a Costco Citibank card, he was shocked when the issuer told him he didn’t qualify.
“I’m still trying to get an understanding of exactly why,” he says, adding that he sent a letter to the bank asking for an explanation. “My mortgage is paid off and I’m retired, so I wonder if that could be it. I get most of my income now from a combination of Social Security and investments.”
Factors that impact credit decisions
Income can indeed play a role in a decision to reject a credit application, experts say. Here’s a look at how income and several other common scenarios might affect seniors applying for a card:
- Your income is lower in retirement.
If you’re living off less income than before, that can impact the formula the bank uses to determine your creditworthiness, even if you are easily meeting your expenses. In addition, creditors focus on income, not assets, says Brian Riley, director of the Mercator Advisory Group’s Credit Advisory Service. “That means if you have an investment retirement account that’s worth $6 million, that doesn’t help because it’s not included in the typical means test that creditors use,” he says.
- You paid off your mortgage.
Paying off your mortgage is viewed as the ultimate financial accomplishment, but it can actually hurt your credit in the long run. That’s because banks like to see a mix of credit on your credit report, including installment loans (loans for a fixed amount with a fixed repayment period such as car loans). If you don’t have a car loan and your mortgage falls off your credit report because you paid it off, that can hurt your score.
- You co-signed on a loan.
Co-signing on a student loan or mortgage for a child or grandchild counts against your debt-to-income ratio even if you’re not the one making the monthly payments, Riley says. If your income is also lower than it has been in the past because you’ve retired, those factors combined may push you toward denial. A study from the Consumer Financial Protection Bureau found that that 2.8 million Americans age 60 or older had at least one student loan in 2015, quadruple the number from 2005.
- You have no debt and rarely use credit.
If there’s no activity on your credit report for six months, you may come back “unscorable,” and that can cause a bank to turn you down as well, Paperno says. In a 2016 blog post, FICO noted that about 7 million American adults are unscorable because they have no recently active or updated accounts and no payment blemishes. Their average age is 71.
What to do if you’ve been denied
If you’ve been turned down for credit as a senior citizen, your first step is to pull your credit report to make sure it’s accurate. (If it’s not, follow these steps to remove errors from your credit report.) You should also check your credit scores.
If your report is accurate but there’s not a lot of activity on there, the fix is simple: Start using an existing credit card to pay for something small at least once a month, or have a regular monthly bill charged to your card. Even making a small charge and paying it off every month should immediately boost your score, Riley says.
If you don’t have any current credit cards in your wallet, think back to whether you’ve ever opened a store card. Retailers tend to keep those accounts open for years, Paperno says. Even if you no longer have the physical card, you can often call and reactivate your account without a credit check.
Video: What is a secured card?
If you don’t have a card and your lack of credit activity is making it hard to get one, consider applying for a secured card. They operate just like credit cards, but require you to make a deposit in order to open the account.
“The secured card is often viewed as a tool for someone who has bad credit or is just getting started, but they’re great for seniors because seniors tend to have some money in the bank,” Paperno says. “Once the card reports to the credit bureau, you’ll be scorable again. Even though it’s a new account, all of your older stuff will be back on there.”
If it’s your income or debt load that’s affecting your score rather than a lack of credit activity, consider approaching a financial institution where you already have a banking relationship, Riley says. Credit unions are another good option. Because they’re small, they tend to be more consumer friendly, and even if you’re denied, you can usually talk to a real person to find out why.
And keep in mind that mistakes happen. In 2011, a 99-year-old named Madeleine Otto was shocked when she tried to open an account at a Florida Stein Mart and her application was denied.
Otto thought it was because she was too old, but it turned out she was too young, at least according to the computer. When the clerk put in the last two digits of Otto’s birth year – 1912 – the computer registered it as 2012 – and rejected her because she was under the legal age to enter into a credit card agreement.
See related: How to handle elderly, sick parent’s credit card debt, Charged Up! podcast: Get a financial life