Nearing retirement and not too concerned about your credit score? Here’s why that number might matter more than you think.
An increasing number of Americans are planning to work past the age of 65, highlighting the need for financial security during your retirement years. According to a survey taken by the Employee Benefit Research Institute (EBRI), 79% of American workers intend to supplement their retirement income by working for a salary.
In the here and now, it’s not uncommon for Americans to take out personal loans and credit cards to supplement their cash flow. If this sounds like a financial strategy you’re planning on using in your golden years, you’ll need to monitor and maintain your credit score.
What is my credit score?
Even though you probably know what a credit score is, we’ll give you a quick refresher. Your credit score is a number calculated by credit reporting agencies based off of information on your credit report.
Credit scores give lenders and businesses insight about your credit history to help them make a more informed decision to approve or deny credit requests. With a higher credit score, you’ll have increased chances of approval, plus access to higher credit limits and lower interest rates.
Check your credit to see where you stand
8 reasons your credit score is important during retirement
Just like working hard to save before you retire, a good credit score can help support you during your retirement years. Here’s how:
- To be eligible for credit cards and different types of loans. If you’re a retiree, you may still like the convenience of a credit card to help pay for unexpected purchases. Similarly, a lump-sum personal loan or line of credit loan may also suit your retirement lifestyle. It’s important to compare your options before you apply.
- Finding a new house or apartment. Maybe you’re ready to downsize or you’re planning on moving to an independent living facility. Creditors, landlords and senior living communities typically run a background check to look into your credit report and score.
- Refinancing your house. During retirement, it’s wise to consider refinancing your home if you’re still paying off your mortgage. By refinancing, you can use the money saved on your monthly payments elsewhere in your retired years.
- Home equity line of credit. Perhaps you need to make changes in your home to make it more accessible for you or your loved one in your older age. A good credit score can land you lower interest rates when refinancing to make home improvements.
- Lower insurance rates. Higher credit scores tend to correlate with lower insurance premiums in states other than Massachusetts, Hawaii and California. Customers with healthy credit scores are seen as less of a financial risk by providers who use credit-based insurance scores.
- Help support children by cosigning. Helping children get onto the property ladder or supporting them financially in later years has become more common. Whether your cosigning a loan or credit card, your credit score will be factored in when giving your loved ones a financial push.
- To invest in property. If you pay off the mortgage for your primary residence before you retire, using the equity to invest in a property during retirement can provide additional income. However, you’ll need a good credit score to even consider this strategy.
- Emergencies. Fixing up the house, minor car repairs and medical issues are expenses that can pop up unexpectedly. A healthy credit score can get you access to a higher credit limit which can help alleviate these types of unanticipated costs.
By keeping a clean credit score you can make sure you’ll be able to access finance during retirement should you need it.
What your children should know about credit reports
5 ways to keep a healthy credit score during retirement
Use these helpful credit and financial strategies in your later years to keep that credit score strong.
- Budget for your income and expenses. If you don’t know where to start, reaching out to a financial advisor can help get the ball rolling to set you up with a working budget for retirement.
- Reduce monthly expenses. Examine how much your spending for insurance, telephone, cable and other monthly expenses and see where you can cut back. To take it a step further, consider if the size of your home makes sense as you’ve gotten older, or if you really need two cars between you and your spouse anymore.
- Earn extra income. You may find that you have some extra time on your hands, why not turn those wasted minutes into supplemental cash with a job that isn’t physically demanding. Extra funds can help balance out your budget and give you more financial freedom.
- Monitor your credit report annually. Be in the know of what’s going on with your credit by checking each of your credit reports from all three credit major bureaus. Keep an eye peeled for errors or suspicious activity and reach out to the credit reporting agencies to fix any inaccuracies.
- Use your credit responsibly. Pay your bills when they’re due, keep your accounts open and active, maintain a low credit utilization ratio ask for credit limit increases every few years.
As people get older, they may find themselves more financially stable and using their credit cards less and less. Even if you’ve gotten to a point where it’s no longer necessary, swiping your card every once in a while can keep your account active.
When lenders see that an account is inactive, they’ll generally lower your credit limit, which can make your credit score take a small hit. Most people tend to close accounts they’re not using — don’t. When you close old accounts, you can damage your score by lowering the length of your credit history.
Even when you retire, your credit score still matters. By managing your finances and keeping a high credit score, you don’t have to stress about the “what ifs” during your golden years.
So by maintaining a healthy credit profile, when it’s your time to relax and enjoy retirement, you can do just that.