Good credit isn’t just important when you’re young. Even if you plan to have a paid-off car and mortgage by the time you retire, that doesn’t mean you will never need to apply for a new loan or credit card because plans don’t always work out. What if your mortgage isn’t paid off by retirement and you want to refinance into a lower payment? What if you need to finance a new car purchase? What happens if you need to access the equity in your home with a loan? These are just a few reasons to pay attention to your credit as you enter retirement.
The good news is maintaining good credit in retirement isn’t all that difficult, even if you no longer have a mortgage to pay. Here’s how to look after your credit during retirement and why it’s so important.
Good Credit Matters in Retirement
In the past, many seniors didn’t give much thought to maintaining their credit once they paid off the home and car and began collecting retirement benefits. The truth is credit matters much more today. According to the Federal Reserve Bank of New York, debt among Americans between 50 and 80 has increased nearly 60% since 2003 with increases in auto, mortgage, and even student loan debt. Borrowing is more common among older adults but there are also other reasons to maintain your credit:
- Good credit keeps your auto and home insurance rates down in most states.
- With a good credit score, you will be able to refinance a mortgage more easily and get the best possible interest rate.
- You may decide to move or downsize. If you rent in the future, your credit score may matter to a landlord.
- To access the equity in your home without selling, you will need good credit to refinance or take out a HELOC or home equity loan.
- You may need a loan in case of emergency such as a major medical bill or home repair.
- A rewards credit card can earn you cash back on purchases like groceries and gas.
- You may encounter a large and unexpected expense such as starting a business or traveling and need access to money in the short-term.
Keep a Credit Card
Don’t be tempted to use only cash or a debit card. According to TransUnion, over one-third of seniors are reducing their use of credit cards which can result in accounts being closed. If you don’t have active loans and don’t use credit at all, your credit score will likely take a hit. Keep at least one credit card active and use it regularly. Just make sure you pay the balance in full to avoid interest charges. Make it a goal to never use more than 20-30% of your credit limit at once, either, as this can be reported on your credit file and affect your credit utilization ratio and your credit score. If you don’t have a credit card in your own name when you retire, make it a priority to help establish or maintain your credit score.
Think Twice About Co-Signing
At some point, a child or grandchild may ask you to co-sign on a student loan, credit card application, or other type of loan. While this may be the only way they can get approved, think twice because being a co-signer comes with serious responsibility. As a co-signer, you are responsible for the debt if the borrower defaults on the loan. Their payment history will also be reflected on your credit report. If your family member or friend misses payments, it will be your credit score that is impacted. This account on your credit file can also affect your ability to qualify for a loan if you need one in the future.
Don’t Close Old Accounts
Don’t make the mistake of closing old credit accounts you aren’t using. One factor that affects your credit score is the average age of your accounts. By closing old accounts, you are essentially reducing the age of your credit history. This can also affect your credit utilization ratio, or the amount of debt to available credit, because you are closing a credit line that’s available to you. It only makes sense to close old accounts if you are paying an annual fee and don’t use the account anymore. Otherwise, leave the accounts alone and try to use them occasionally to keep them active.
Check Your Credit Reports
At least once a year, request free copies of your credit reports from TransUnion, Experian, and Equifax to check for mistakes and signs of identity theft which can both impact your credit. If you find accounts, Social Security numbers, names, or addresses that don’t belong to you, it may be a sign of credit fraud. You should also look for errors on your report such as an incorrectly reported credit limit or balance, negative information that should have been removed from your file, or a payment incorrectly reported as late. According to the FTC, about 25% of people find errors on their reports that can affect their credit scores. If you notice an error, you can file a dispute directly with the credit bureau and they must investigate and correct the problem.
Guard Against Identity Theft
People of all ages are affected by identity theft in its many forms but seniors are often a target for identity theft scams. Identity theft can happen in many ways, such as a data breach from a website or retailer, mail stolen from your trash or mailbox, a misplaced Social Security card, or more direct tactics like calling you and pretending to be someone you know. Here are some tips to safeguard your identity and your credit.
- Remember that legitimate businesses and organizations do not ask for personal information via email. Be careful when giving out your information and verify you are providing it to the correct person.
- Monitor your credit reports, bank statements, and credit card statements regularly and watch for unusual activity.
- Limit the information you share online such as your mother’s maiden name or address.
- Shred statements and sensitive information before throwing it in the trash.