Is Your Credit Score Important in Retirement?
The phrase “if you don’t use it, you will lose it” applies to more ways than one in retirement...It’s not just your health or mind – it could be your credit, too!
You can spend a lifetime building and maintaining perfect credit only to watch it dwindle when you stop using it. Well, is it even necessary to keep good credit when you’re retired? After all, you may have paid off everything and have the cash resources to buy anything you need.
The short answer is Yes!
To help you gain perspective, in no particular order, here are five of the many reasons:
Financial Flexibility. Good credit gives you flexibility. There may be a time when you need credit to obtain an interim loan, when you have a short-term cash crunch, or to avoid paying taxes on liquidating other money. For instance, say you want to buy a car. There are no other incentives, but you can get zero percent or even one to two percent financing as a result of your credit standing. If you were to pay cash, you would have to liquidate some of your investments and it would cost your over twenty percent in income taxes. Would you like the low interest option in this scenario?
Change is Inevitable. May new retirees choose to make a physical move. It might be to downsize or move to a retirement community, move closer to family, move further away from family…or have a forced relocation. No matter the reason, good credit comes into play. We already touched on financial flexibility, which can be a factor here, but there are other ways good credit can have an effect on your decisions. Some retirement communities and HOAs may run a credit check. Setting up all of your household bills could require deposits if your credit is not in good standing. Plus, what about those incentives for household appliances that could allow you to pay no interest while letting your cash grow at these nice saving’s interest rates today.
The Unexpected. Your credit score is a factor in many areas of your life that you may not think about until you need it. For example, your automobile insurance premiums are usually impacted by your credit score. Those “senior moments” may happen when out and about, and you don’t need a double whammy.
You may want to work in retirement. After all, it’s the first time in years that you have spent this much time with your spouse…Actually, you may find that you need to work as costs continue to increase. A lot of companies run credit checks as part of their hiring process.
You may spend a lot of dough in the so-called “Go-Go” years in retirement. Why not reap rewards? Good credit and good perks go hand-in-hand with credit card usage...whether it means cash back, travel incentives, or other credit card perks. The key, though, is to keep it paid in full and not fall prey to bloated compound rates.
The question that remains is: What do you do to maintain your credit in retirement?
It’s fairly simple if you follow a few rules. (Special thanks to Philip Tirone, founder of 720Creditscore.com, for these tips):
Use it. Phil recommends keeping 3-5 major credit cards (not shop cards) and use them monthly. This doesn’t mean you need to carry a balance, but you need to use them. Believe it or not, cards that go dormant can hurt your credit.
Don’t overuse it. Your credit score is impacted by what is called a utilization rate. If your limit on a card is $10,000, then only use up to $3,000. Anything above 30% can actually hurt you.
Sit on it. There are three legs of good credit. Keep what you can going that makes sense:
Installment notes— such as your car loan, with scheduled payments
Revolving lines of credit— credit cards are the most common
Mortgages
Don’t abuse it. Opening and closing accounts can hurt. Too many can hurt and closing accounts can increase your utilization limits.
Watch it. You should pull your credit report every now and again (not a score - it won’t help a bit). You can access each of your credit reports from the three bureaus once per year without cost at annualcreditreport.com. Look closely, are the names on the accounts all the same? Are the credit limits correct? Do you suspect credit fraud? This is very important to monitor.
If you have issues or questions, we’ve got the go-to guy. The 720 Credit Score system can educate you and help you better understand credit...how to fix it or even do it for you. Just let us know and we will be happy to make an introduction!
Bottom line: There should be no expiration date for good credit. You may not need to work, but you do need to work at keeping your credit in shape. The only thing constant in life is change, so stay prepared.