When you plan for retirement, most people dream of quiet days reading, world travel or even starting a business. After years of hard work, saving and successful money management, the last thing you would imagine is that you need more financial planning to ensure your creditworthiness lasts for the next 30 years and beyond.
You may think that you can just stop monitoring your credit score once you retire, but this may not be true. While you might not rack up more debt using credit as often as you did in your 30s and 40s, retirees will also have some special credit needs and concerns.
In retirement, your credit score will still be vital to your financial well-being — qualifying for reduced insurance rates, securing a lease in a comfortable retirement apartment community or maintaining high credit limits with issuers when you need some extra funds. In this next stage of life, protecting your creditworthiness and reaping the rewards of good credit management should be your new focus.
7 Credit Strategies to Consider in Retirement
Want to keep your credit strong and vital as you sail through retirement? Here are seven strategies to help you manage your credit and save money by taking advantage of a long credit history:
1. Credit Agencies Reward Longevity
Many retirees have 20 or 30 years of good credit history with several credit accounts they have maintained in good standing. The longer you’ve held an account with a good record, the better it is for your score. Even small mistakes, such as the occasional late payment, are less likely to hurt your score with decades of good behavior to counteract the effect on the score.
Some people consider closing long-held accounts to simplify finances as they approach or enter retirement, however, this may negatively impact your credit score. Even if it is a card you don’t use often, by closing the account it can shorten the length of your credit history. Additionally, this may decrease the amount of credit available to you which ultimately affects your credit to debt (utilization) ratio, and both of those factors go into your credit score.
Keep your credit history going without adding debt by simply charging a single coffee or dinner on a card, then pay it off immediately.
- No Co-Signing for Someone Else’s Lease, Credit
Card or Loan
We all want to help our friends and family with financial matters, especially if we’ve hit retirement in a good financial position. Unfortunately, you may not realize that if you cosign for a lease, credit card or loan, it’s factored into your credit report just as if it’s yours.
Not only are you on the hook for someone’s debt if the borrower defaults, but that debt is included in your utilization ratio. Say you have $10,000 in available credit and have $1,000 due on your cards, your utilization ratio will be 10% — that is usually considered a good, low ratio. If your cosigned line of credit adds an additional $2,000 of owed debt, then your utilization ratio just jumped to 25%.
If you need to use credit in the future, you may find you have none left to utilize, your credit score could drop, and if you end up on a limited income, you could be stuck holding the bag. Pass on new shared debts whenever possible.
3. Monitor Your Credit Score Relentlessly
Even if you’ve had a long, excellent credit history and don’t plan on opening new lines of credit, it
is extremely important to monitor your credit report. Just because you are not behind on payments or opening new credit cards, this does not mean you are not at risk for identity theft. Retirees are often the targets or victims of credit card fraud, so check your credit report annually, if not monthly, to catch any suspicious activity or mistakes.
Get a Credit Report for FREE
You may not be used to asking for free credit reports, but federal law entitles you to a free copy of your credit report every 12 months from each of the three major credit-reporting bureaus: Equifax,
Experian and TransUnion. In addition, there are websites dedicated to helping you securely monitor your credit report for free.
4. Qualify For the Best Rewards Credit Cards
Now that you’ve hit retirement, you may want to use those credit cards for everyday expenses or taking that dream trip around the world. For those with good credit scores, you may want to consider opening a credit card which lets you rack up rewards, such as airline miles, cash back, gas cards, discounts and more – all at no extra cost to you.
Make your good credit score work for you! As long as you pay off the balance in full every month, you won’t have to worry about paying interest, and you will be able to save money on everything from daily expenses to those major purchases. If you plan to travel during retirement, gaining access to these cards can seriously offset the costs of airfare, hotel fees or currency exchanges.
5. Save Money by Refinancing Your Mortgage
For those looking to be debt-free in retirement, you may want to think again. If you are heading into retirement with a mortgage, a high credit score could help you secure a lower interest rate, which lowers the total cost of your home.
A good credit score gives you the ability to refinance your mortgage when interest rates are low, which could save a significant amount of money each month. And in limited financial circumstances, a cash-out refinance could give you immediate access to cash when you need it most.
6. Keep Affordable Insurance Rates
Auto insurance and homeowner’s insurance carriers use credit scores to calculate insurance prices and premium rates (some restriction apply in Hawaii, California and Massachusetts). The higher your credit score, the less risky you seem which means lower insurance premiums.
If you have good credit or have recently updated your score after removing mistakes or negative remarks, ask around for better deals and use your negotiating power with insurers.
- Raise Capital or Financing for a Business After Retirement
Finally, you can put your good credit to work by financing that dream start-up or to gear up for your in-home consulting business. Whether in the form of a home equity line of credit or an unsecured loan, a good credit score can help retirees raise capital at attractive rates to fund a second career.
Put Your Creditworthiness to Work in Retirement
Just because you retire, does not mean it’s time to rest on your laurels when it comes to credit management. Maintain the good financial habits which helped you build your strong safety net, but don’t forget to take advantage of the financial opportunities those good habits have brought to you.
If you are ever in doubt, be sure to speak with a trusted financial advisor who can help you make smart credit choices given your personal finances.