Does Your Credit Score Matter in Retirement?
Whether you’re living the dream of a debt-free retirement or you’re still working towards paying off debt, there are some pretty compelling reasons to continue caring about your credit score after retirement.
In a perfect world, everyone would enter retirement with a paid-off mortgage, zero debt, and a nest egg large enough to ensure they would never need to borrow a cent. The ideal scenario is that you would have accounted for every dollar you had to spend and knew how you would spend them.
Unfortunately, that rarely the reality. According to the Consumer Finance Protection Bureau, among homeowners aged 65 and older, the percentage carrying a mortgage increased from 22 percent to 30 percent from 2001 to 2011. The median amount owed increased from $43,300 to $79,000 during that same period.
Mortgage debt isn’t the only debt seniors are taking with them into retirement. The National Council on Aging reports that more than 32% of seniors have credit card debt and, among senior households with credit card debt, one in four have a balance of at least $7,200.
And, most research indicates that majority of seniors have not saved enough for retirement — which often means that they will rely on debt throughout their golden years.
Here are 10 reasons you should worry about your credit score even after you retire:
1. You have existing debt
If you have existing debt from credit cards, mortgages, car loans, or student loans, you’ll want to maintain a high credit score to keep interest rates low. Existing creditors pull the credit scores of borrowers from time to time to assess whether your circumstances have changed and you are likely to fall behind on payments. Credit card companies could hike your interest rate or reduce your credit limit.
2. You need car insurance and homeowners insurance
Insurance companies use credit scores as a part of their rating metrics. The higher your credit score, the more responsible you look and the lower your rates will be.
Even if you’ve been with your insurance carrier for several years, you should consider shopping around and a credit check will likely be a part of the insurance company’s underwriting process. Shopping your home and auto insurance every year or two ensures that you’re getting the best deal available. Insurance rates can change quickly and dramatically. Just because one company was the cheapest available last year, it doesn’t mean they are the least expensive this year.
3. You need to buy a new car
It’s likely that you’ll want to buy a new car at some time during retirement. Even if you can afford to pay cash, there are some situations in which it might make more sense to finance. Auto dealerships tend to offer the lowest interest rates to borrowers with excellent credit. Your money might be tied up in retirement accounts and you would have to make taxable withdrawals to pay for the vehicle. Maybe you’d have to sell stocks and recognize a substantial capital gain or loss. In either of these situations, you could be better off keeping your money invested than taking it out to pay for a vehicle.
You’ll want to crunch some numbers – or get some help from your financial advisor or accountant – to decide whether you’re better off paying a low-interest rate on a new vehicle or taking money out to pay cash.
4. You want to buy a home or refinance
Will the home you are in now be the best living situation for you throughout your retirement? At some point, you may want to downsize, move to be closer to family or live in a better climate, or move to a home that’s more accessible as you age. You may be able to pay cash for a new home, or you might choose to take out a mortgage because interest rates are low and you can benefit from the tax deduction for mortgage interest.
In periods of low-interest rates, you may want to refinance an existing mortgage or take out a home equity line of credit to remodel. Whatever the reason for borrowing against your property, the best rates will only be available to borrowers with the highest credit scores.
5. You are co-signing a student loan
Co-signing a student loan for your child or grandchild is never a decision you should take lightly. The debt will appear on your credit report for the life of the loan, possibly negatively affecting your credit score. Plus, if the student defaults on the loan, the cosigner is on the hook.
Still, some family members do choose to help a student by co-signing to increases the chances of the student being approved for private student loans and qualify them for a lower rate. Since interest rates on private student loans vary based on credit history, you’ll want to make sure your credit is in tip-top shape before applying.
6. You want to start a business
For many people, retirement is not the end of working but the beginning of finally doing what they love. If you’ve always dreamed of starting your own business in retirement, you may need to apply for a small business loan or a business credit card to get the capital required to start a business.
7. You love to travel
While carrying credit card debt is never a good idea, there are some instances where using credit cards is a wise move. Credit cards are more convenient than carrying a bunch of cash and they offer better consumer protection than debit cards. The hotel industry is a target for computer hackers and data-stealing malware due to the high volume of credit card transactions they perform and the amount of information they keep on travelers. As scary as it might be to expose your credit card information, the potential damage is even worse if your debit card information is hacked. When your credit card is stolen, the card issuer must fight to get its money back. When your debit card is stolen, they can wipe out your bank account and you have to fight to get your money back.
8. You really love to travel
Want to earn free flights, hotel stays, and cruises? Sign up for a credit card with travel rewards. You can use the card for everyday purchases and pay it in full every month while you rack up travel rewards.
There are dozens of travel rewards credit cards out there. Most of them let you earn points for every dollar you spend and redeem those points for free or discounted flights, hotels, cruises, restaurants, and gas station fill-ups.
The cards that offer the best rewards require a good to excellent credit score for approval and often come with a higher interest rate. Make sure you don’t carry a balance from month to month or you could end up paying more in interest than you earn in rewards.
9. You need to protect yourself from identity theft
Retirees who believe their credit score doesn’t matter may put it out of mind and stop monitoring credit reports. This is a huge mistake. Seniors are prime targets for identity theft because they typically have a lot more money than younger people who are just starting out.
Take precautions to safeguard your personal information. Even if you aren’t using credit, continue to monitor your credit report to protect yourself from errors and identity theft. At a minimum, you should order a free credit report from the three credit reporting agencies once per year. You can do that at www.annualcreditreport.com. Watch out for other sites that claim to offer a free credit report, but force you to sign up for a credit monitoring service.
Maintaining a good credit score in your retirement years is no different than doing it in your 20s or 30s. Pay your bills on time, keep total debt low, and monitor your credit report for errors and identity theft. Maintaining good credit is one way to ensure you’ll enjoy a healthy financial life long after you’ve left the nine-to-five world behind.
10. It is just another part of managing a retirement plan
Maintaining your credit score can be seen as one aspect of your overall retirement plan. The more detailed your retirement plan, the more secure and confident you can be during retirement.
The NewRetirement Retirement Calculator makes it easy to get started with fast answers about your retirement finances. You start by entering some basic information and then you get a detailed assessment. You can then rapidly assess different options for when to stop working and when to start Social Security, etc…. This tool was recently named a best retirement calculator by the American Association of Individual Investors (AAII).