5 Reasons Your Credit Score Matters in Retirement
Finally…you’ve said good-bye to your last job and you’re settling into retirement. Along with the daily commute, one of the things you can cross off your to-do list is maintaining a pristine credit score, right? Not really. There are reasons why, even in retirement, having excellent credit can be a boon.
Here are five scenarios in which having and maintaining great credit can help you reach a goal or address a lifestyle issue that may come up when you’re no longer working.
1. You Plan to Travel
One dream you may be longing to fulfill as a retiree is seeing the world, now that you have more time to do it. Whether your destination is Cape Town or Cabo San Lucas, what can help get the best deals on expenses like airline tickets and hotels is a credit card that’s generous with rewards. (See Top Airline Miles Credit Cards for specific examples.)
Of course, you need excellent credit to secure one of these cards. You also need to use the credit cards you have and pay off any balances in full to maintain a good credit history. “Use it or lose it,” a quip that usually refers to keeping your muscles strong and in shape, is just as applicable to your credit. You have to use it – responsibly – to keep it healthy. If you can’t, don’t apply for more plastic: No rewards perks are worth the cost of a credit card if you are unable to keep up with your payments.
2. You’d Like to Refinance
What retiree doesn’t hope to have the mortgage paid off before the last day of employment arrives? But not everyone is able to reach that goal. About 30% of homeowners age 65 and older still have mortgage debt, according to a 2011 Consumer Financial Protection Bureau’s analysis of Census Bureau data. And that number rose from 22% in 2010.
Having stellar credit can help you get the lowest rate on a refinance, which could lower your monthly payments (be sure to take closing costs into consideration). A strong score can also help you get the best interest rate on a new mortgage.
The same is true if you have paid off your mortgage and want to use the equity in your home to buy a vacation cottage – or if you want to co-sign a mortgage for a child or grandchild.
3. You’re Buying a New Car
In addition to possibly needing a loan to make the purchase, you’ll have to get auto insurance. Many insurers use a client’s credit-based score to calculate premiums and other costs. These are not the same as a FICO score, but they are based on several of the same factors. Massachusetts, Hawaii and California don’t allow insurers to use credit-linked scores; however, if you live in one of the other 47 states, the higher your score, the less risk you represent – and that can translate into a lower premium.
“A high credit score shows creditors that you are a responsible debt holder, and a lender may be more likely to extend lower interest rates for you to buy a car or lower premiums for car insurance,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”
4. You Want to Avoid a Stolen Identity
The threat of identity theft doesn’t stop when you retire. In fact, seniors are, if anything, more likely to be targeted. If you aren’t paying attention to your credit history, you may not notice that you have been victimized. It’s easier than ever to keep track of your credit reports, scores and history. A number of banks, including Citibank and Chase, now offer customers the option of monitoring their credit scores for free.
“Monitoring your credit report and credit score should be done at least quarterly. Many credit cards provide a free look at your credit score. These reports are updated on a monthly basis, so be sure and review,” says Kimberly J. Howard, CFP®, owner/advisor at KJH Financial Services in Newton, Mass. (See Top Places to Get a Free Credit Score or Report for more.)
5. You Have a Great Idea
Not all sixtysomethings have their sights set on retirement, of course. And even those who do retire don’t necessarily stop working. Often, they follow through on a long-held dream, and develop or invest in a new business. If that’s you, having a solid credit history can help you get funding for a start-up or establish a home-equity line of credit to get your project off the ground.
The Bottom Line
Even if you’d rather not think about your credit score, you need to stay on top of it during retirement. Doing so will give you greater freedom to enjoy life with fewer worries and the knowledge that if an emergency arises, your credit is good and funds are available, should you need them.
One thing you can let go of: the concern that your age will affect your credit score. Don't worry. It doesn’t.
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