How to Maintain a Solid Credit Score After Retirement
Most American nearing retirement naturally believe that their borrowing days are over once they unplug from the workforce. In a flash, they shift all their attention towards wealth preservation instead of continuing to adhere to the same spending strategy. On the surface, cutting your expenses sounds like a smart move. However, if you don’t maintain a good credit score after retirement, this move may backfire.
Let us explain!
When most young adults enter the workforce, applying for a credit card is often the first thing to do so can finance different purchases or pay their bills while accumulating debt. However, they’re faced with a paradox as most creditors check their credit history before issuing cards. But how could they issue one if they’ve never had a card before?
In contrast, people on the verge of retirement have a long history of paying bills, securing loans, and buying different products. All these transactions build up their credit history.
However, following retirement, many retirees switch to an all-cash lifestyle, especially if they’re debt free. Thus, they invite another paradox as they gradually reduce their card usage.
As a consequence, their scores go down quickly and they lose their usage history over time.
In this post, we’ll talk about the importance of a good post-retirement credit score. Moreover, we’ll share how to maintain a solid credit score after retirement with five useful tips.
The Importance of a Good Post-Retirement Credit Score
Maintaining a good credit score at any age offers a host of benefits. For starters, it helps individuals get access to financing using which they can meet their physiological needs, such as a vehicle or a house. The same goes for retirees, especially those looking to maintain or improve their lifestyle after retirement.
For instance, many seniors want to relocate to a new city or country or downsize their property to reduce their expenses. Unless they have enough cash to purchase a property right away, they’d most probably require a mortgage. Regardless of your age or employment status, your credit score will impact your loan application.
So, this is the first reason for maintaining a good post-retirement credit score – to improve your chances of securing loans for big purchases.
Secondly, having a good credit score is a great way to secure lower monthly bills as it proves to lenders that you’re trustworthy and reliable. Many credits offer discounts, freebies, miles, and other incentives for users to maintain a healthy credit report.
Finally, when most people enter retirement, their incomes often drop significantly. While reducing expenses and downsizing can help manage your wealth, it can often put retirees in a fragile position, especially during medical or other emergencies. Thus, having a good score reduces your monthly debts and plays a supporting role in getting through uncertain periods.
6 Ways to Maintain a Good Credit Score After Retirement
There’s a long list of to-dos when preparing for life after retirement, or should we say, life without regular paychecks. Most professionals start at least 5-10 years before retiring so they don’t have to deal with cash shortfalls. However, due to other priorities, they neglect their credit scores and allow them to fall even after spending years keeping them above 750.
Fortunately, there are ways anyone can maintain a solid credit score after retirement. Here are our top suggestions:
1. Keep Your Plastic Handy
As counterintuitive as may sound, taking on some debt is one of the best ways to maintain a healthy credit report. By doing so, you’re ensuring your card serves its core purpose by not paying for items in cash. So, if you have a credit card, make sure you use it from time to time. You can use it to pay for groceries or gas.
Or, you could pay all your utility bills (gas, electricity, internet, TV, streaming services, etc.). The point is to keep your credit account active as it makes up nearly 15% of your overall score. Moreover, the absence of history can affect you negatively since it amounts to unused credit that stops creditors from earning.
In some cases, creditors could cancel your card due to the lack of activity since they won’t have sufficient information to assess your score. Therefore, you should try to put a few charges every month to keep your credit report ticking.
2. Monitor Your Credit Report Regularly
After years of using a credit card, you’re probably no stranger to errors in your report in the form of extra charges, missing information, wrong dates, and even malicious activities. Following retirement, many people stop checking their credit reports, resulting in potential errors going unchecked. As a consequence, they end up reducing their credit score unnecessarily.
Even if you don’t use your card as actively as you did before retirement, you should check your credit report actively to repair any errors that could impact your report. Ideally, you should use a credit monitoring service or download a free report from Annual Credit Report.
You can do this for free up to three times a year and contact your card issuer anytime you find something that’s not supposed to be on your report.
3. Never Close An Old Account with a Lengthy Credit History
Many people approaching retirement often have years or even decades’ worth of credit history and yet they still end up closing their accounts unnecessarily. The average age of accounts is one of the many factors creditors use to determine your score.
Closing an old account can also impact your overall credit utilization ratio, especially if maintain multiple credit cards. Therefore, keeping your credit lines open is a great way to improve your CIBIL score while providing yourself a backup source of funds if you’re caught in a financial pickle.
4. Never Delay Payments
Your payment history accounts for nearly 35% of your overall credit score. Therefore, one of the best ways to boost your score is to make sure you clear all your debt on time. With your income sources already on the verge of decline or depletion following retirement, the last thing you want to do is to have a pile of pending payments.
If you plan on using your credit card, you should try to keep usage to a minimum and never spend unnecessarily. For instance, you should use your card for recurring bills and payments to keep it running. For other purchases, you can stick to debit or cash.
5. Reduce Your Credit Utilization Ratio
Another great way to maintain a solid credit score after retirement is to reduce your credit utilization ratio and keep it under 30%. By keeping your balance low according to the available credit in your account, you can build more trust among creditors and lenders. So, if you’re planning to buy a new car or home after retiring, this can improve your chances of securing a loan.
To calculate your CUR, check your balance and divide it by your credit limit. Once you have a decimal figure, multiply it by 100 to get the percentage. For example, suppose you have $5,000 of credit and you’ve used around $650 at the end of the month. Your CUR is:
$650/$5000 x 100 = 13%
Apart from keeping your CUR low, never max out your credit limit. In the event of an emergency, try to split payments between cash, credit, and debit to keep your CUR under 100% at all costs. Maxing out could lead to card cancellation or future loan rejections.
6. Never Sign a Co-Signing Loan
Many seniors or retirees find themselves in financial trouble simply because they helped out a loved one or friend in qualifying for a home or car loan, or a credit line by co-signing their applications. While there’s nothing wrong with helping someone, taking the role of a co-signer after retirement is a risky endeavor since you have no income streams.
Since you’re equally liable for their debt, you’re putting your credit score at risk. So, if they delay payments or default on loans, you have to suffer the consequences as well. Therefore, instead of co-signing, add the person in need of a credit line to become an authorized user. This way, you can determine if they’re trustworthy and keep usage under your control.
Wrapping Up
The bottom line is that it doesn’t matter whether you’re in the workforce or retired. You need to be proactive in your financial matters and learn how to maintain a solid credit card score after retirement. The tips or suggestions in our list are easily doable. So, try them out and see the difference for yourself. If you need any further assistance, get in touch with an experienced post-retirement financial expert.
