You may have followed your credit score closely during your working years, when milestones often coincided with credit checks for mortgages and car loans. However, certain factors related to credit change when you enter retirement. You might not have a mortgage anymore, and have no plans to purchase another car. Only 16 percent of baby boomers were concerned about maintaining good credit as a top financial priority when getting ready for retirement, according to a 2017 TransUnion survey.
But before brushing credit to the side, it’s important to carefully consider whether you will need credit during your retirement years. “Seniors may not anticipate using credit during retirement, but circumstances change,” says Mike Sullivan, a personal finance consultant with Take Charge America, a nonprofit credit counseling and debt management agency. Here’s how credit might be used in the years to come, along with good strategies to stay on top of your credit.
Think about upcoming credit checks. If you’re thinking about moving to an apartment, it may be a good idea to maintain a high credit rating. “Credit profiles and credit scores can affect the ability to rent an apartment,” says Frederic Huynh, vice president of credit risk analytics with Freedom Financial Network in San Francisco. Landlords will often run a credit check for a new tenant. Many companies will also look at credit when setting rates for auto and life insurance.
If you plan to work part time, you’ll want to know where your credit stands before applying for a position. “Employers are allowed to check credit reports, and frequently do so for positions that require access to large amounts of money or sensitive information,” Huynh says.
Score more points with good credit cards. If you have a strong credit score, such as 700 or more, you may be able to boost your finances with a top-notch credit card. “A high credit rating can make a person eligible for prime credit cards,” says Carol Schmitz, senior vice president and branch administrator at Tompkins Mahopac Bank in Pleasantville, New York. You might be able to get a travel or cash-back card with high rewards. If you use the card and always pay off the balance, you’ll accumulate points or earn extra cash.
Don’t overlook the unexpected. You might not plan to borrow during retirement, but if an urgent home repair or medical crisis occurs, you could need extra funds. “Should a sudden need for a loan arise, having a good or better credit rating opens the way to get it at a prime rate,” Schmitz says.
New opportunities to help family members might come up too. If you have a solid credit score, relatives could ask you to co-sign a loan. A grandchild taking out a student loan, for instance, might ask you to co-sign. Keep in mind that co-signing brings certain risks. If the borrower defaults on the loan, you will be the one who has to send in payments.
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Consider future interests. As you settle into retirement, you may discover new activities to pursue. “People want to explore interests in retirement that will likely often involve credit, like starting a business or buying a second home,” says Matthew Delpriore, a certified financial planner and director of financial planning with Fortis Lux Financial in New York City. “A good credit score makes it easier to borrow at a favorable rate, particularly in the absence of earned income.”
Good credit can also help finance property changes. If you want to take out a line of credit to make home repairs or you need a reverse mortgage, it’s a good idea to maintain a sold credit rating.
Keep tabs on fraud. Identity theft can be a problem for older people who need care. “Very often a family member or caregiver will steal a credit card or just a credit card number and use the account,” Sullivan says. “Sometimes thieves will use other information, such as bank account numbers, to steal, and these activities may leave tracks on a credit report.”
Staying on top of your credit history can help you spot fraud. “Seniors should check their credit reports at least once a quarter to look for unusual activity,” Sullivan says. You can ask for a report at AnnualCreditReport.com.
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Keep the score high. To maintain or build a credit score, start by making it a priority to pay bills before they are late. “On-time payments are the most important factor in credit score calculation, accounting for 35 percent of credit scores,” Huynh says. If you have lingering credit card debt, aim to make changes and pay off the balances. And if you have a credit card with a long, solid history, consider hanging onto it. “The longer you hold a card, the more valuable it is in your credit score determination,” Huynh says. “If you don’t want to use it, store it safely away, but don’t close the account.”
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