We often think of retirement as a time when we should preserve our wealth, instead of building an impressive credit score. While this may be the case in some instances, as a majority of retirees often scale down on their borrowing, keeping your credit score high during retirement can be beneficial for a variety of reasons. It tends to differ from person to person.
By most standards, a higher credit score is quite impressive. It’s often true that older or retired consumers tend to have a strong credit score by the time they reach 60 years.
According to data polled by American Express, the average FICO credit score in the U.S. rose to 711 as of July 2022. On average, those aged 60 and up had an average credit score of 749 in 2019, well above the national average of 703 in the same year.
For younger borrowers, those in their twenties, their average credit score was lower at 662.
Consumer behavior has since changed dramatically, and alongside this so have economic conditions. In recent months, red-hot inflation and soaring interest rates have led many consumers to turn to credit lenders to stay financially committed as the soaring cost of living is eating away at their disposable income.
Retiring now is becoming harder, and more expensive. And for those who will be stepping out of the workforce in the coming years, maintaining a good and healthy credit score means we get to reap the advantages as we age.
Maintain Your Credit Score
One of the biggest mistakes retirees often make is thinking that once they have reached a certain age, they no longer need to maintain their credit score, even if they don’t plan on borrowing money in the near future.
While this may be true, it’s important to maintain your credit score throughout retirement. The reasons are plentiful, but there are cases where retirees are looking to downsize or change insurance plans due to downsizing or other personal matters.
In these instances, having an impressive credit score means that you can secure a more affordable mortgage or repayment structure with your lender. Additionally, some insurance premiums tend to come down once you have reached retirement. A high credit score can also have an impact on this.
Make Use of Credit Accounts
It’s common for retirees to start making less use of their credit card accounts due to the nature of their spending habits. And while this may not be the case across the spectrum, closing a credit card account, or using it less frequently means that your credit score can be impacted in the long run.
Non-use will often lead to credit distributors closing accounts due to the lack of activity. More so, the account may not even be calculated into your credit score because of insufficient account use.
It’s important to know that the length of your credit history can represent almost 15% of your overall credit score. In the absence of a history, you can quickly become penalized. Consider using your credit card for smaller expenses, rather than paying off debt, or outstanding balances with it.
Keep Track of Accounts and Credit Reports
The widespread adoption of technology has now brought on large-scale cyber crimes that often target older consumers due to their lack of technological knowledge and skills.
Monitoring your credit reports helps you to see whether you have become a victim of credit or identity theft, or perhaps have undergone some form of cyber financial crime.
Additionally, your credit reports can also indicate any possible errors that may have been incurred on your account. While it may seem like something small, in the long term, it can have a damaging effect on your credit score.
It’s advised to check your credit report at least quarterly or make use of checking at least three times per year.
Keep a Low Balance
Make sure that you keep your credit balances low, and a good way to do this is by keeping your credit limit at 30% of your total credit.
The reason for this is that lenders often monitor how often you use your credit accounts, which is referred to as a utilization rate. Keeping the account active, and paying off balances monthly will help maintain a good utilization rate.
While this strategy is found to work the best, especially for retirees, it helps to know that you won’t experience any interest charges if your utilization rate is lower than usual.
Avoid Co-signing
As a retiree, you might have found yourself being asked to co-sign a friend or family member to help them secure a credit account or credit card. While we tend to think we’re helping them, which we often do, it ends up turning out more expensive for us retirees.
Having to co-sign makes you just as financially liable for the debt. It can directly impact a credit score and finances in the unlikely event that the person is unable to make repayments or requests refinancing.
The best thing to do in this situation is to add the person as an authorized user on your account which does minimize the chances of you having to sit with higher costs and a lower credit score.
The Bottom Line
Maintaining an impressive credit score during retirement is a lot easier and less complex than one might think. It takes a bit of time to get used to not having to need your credit accounts so often. But in these cases, it’s important to monitor your credit reports throughout the year and keep your credit accounts open for as long as possible.
Although you might not use these accounts as often as you did, keep in mind that keeping your impressive credit scores means taking care of it, even if you retire. There will be a time when you need to make use of it. When that day comes, you want to be sure that you are set and ready to enjoy the best possible benefits that accompany a strong credit score.
