Your Credit Score in Retirement

Just because you retire does not minimize the importance of your credit. How you manage finances during retirement can impact your credit and thus your ability to borrow or increase the interest rates you pay.  

Your credit reports track your personal history of borrowing and repaying money, including loans and credit card accounts that have been active in the past 10 years, even if the loans are now paid off in full or the accounts have been closed. They also record major negative financial events including foreclosures, repossessions, and bankruptcies.

Some retirees whose days of big-ticket financing are behind them make the mistake of concluding they can forget about their credit scores, in the average 30-year span of retirement some unexpected situations may arise in which a new loan or line of credit could be helpful, and the best options and rates will come with higher credit scores. In addition, credit scores can affect finances beyond new loans and credit card rates. Here are a few ways low credit scores can cost retirees money:

• Higher interest rates. Many credit card issuers monitor credit scores for "account management" purposes. Card companies are able to change the terms of your agreement by lowering your credit limit, increasing interest rates, or even closing your account if your scores decline significantly. 
• Increased insurance expenses. Auto and homeowners insurance companies use your credit report to generate a type of specialized insurance score, which determines the rates they charge you. A decreased credit score could trigger higher insurance premiums.
• Security deposits. Renting construction gear or other equipment for a DIY project, or a Wi-Fi router or DVR from the cable company can require a credit check. A credit score that is only fair to good might not prevent you from getting the rental, but it could trigger a higher security deposit than required for higher credit scores.

Maintaining a good credit score can ensure a quality of life as well as minimizing the expenses listed above. For many retirees, traveling is one of their priorities and one common way to reduce travel costs is having good credit cards that specialize in travel rewards, resulting in free flight miles, discounts on hotels, car rental coupons, and so forth. A good travel credit card with competitive rates is hard to come by if you have a poor credit score. You can maintain and improve your credit score before and after retirement through the following actions:

• Pay off debt. Make it a priority to minimize debt before you retire, whether it’s credit card debt, past-due bills, car loan, or your mortgage. This will immediately improve your credit score and will help you enter retirement worry-free..
• Maintain existing credit card accounts. It’s a good move to minimize credit card debt in retirement, but closing accounts will negatively affect your credit history. The length of your history accounts for up to 15% of your credit score. Even if the balance is zero, consider keeping the account open, as it will improve your credit history and score.
• Check your credit reports regularly. Many websites, such as annualreditreport.com, allow you to check your credit once per year for free. Regularly check your score to see where you currently stand, the accuracy of the information in the report, what’s impacting your credit score, and take any steps needed to improve it.
• Pay your bills on time. Just one 30-day payment delinquency could account for a 90 to 110 point credit score drop.

Just as you pay attention to your creditworthiness while employed, it is just as important after you retire. The good practices you developed before retiring will help make retirement just that much more worry-free.