Why Credit Matters During Retirement
Retirement doesn't look the same for everyone. Perhaps you're transitioning to consulting work, a part-time job, volunteering or exploring new hobbies. Whatever the case, you may be looking forward to a simpler lifestyle. However, you should still be mindful of your credit reports and FICO® Scores. Even during retirement, having good credit can be important for many reasons.
You'll Have More Housing-Related Options
Whether you're looking to buy a vacation home, downsize or move to a new area, your FICO Score can play an important role in qualifying for a mortgage and the interest rate you receive. If you aren't planning on moving, you could still benefit from having good credit if there's an opportunity to refinance your mortgage to a lower rate.
Some retirees also use the equity they've built in their home as an income source or take out loans against their home to invest in renovations and improvements. A reverse mortgage is an income-stream option that doesn't require good credit. But if you have good or excellent credit, a home equity loan or home equity line of credit may be a less expensive route.
If you don't own a home or plan on purchasing one, you may still need to think about landlords and retirement communities, checking your credit when you apply for a rental. Lack of credit won't necessarily be a dealbreaker, but good credit could make qualifying easier.
You May Want to Cosign for a Relative
There could be times when you want to help a child or grandchild with their finances. Perhaps they're having trouble qualifying for an auto loan, student loan or rental. If you have good credit, you may be able to cosign the contract and help them get approved.
But be cautious. If a missed payment is reported, it will be reflected in both the primary and co-applicant's credit history, as both are legally liable for unpaid debts.
You Can Save Money
Even if you never apply for another loan, credit information can be used in insurance decisions. In most states, insurers can use credit information to help determine your auto, home and life insurance rates. While your credit won't be the only factor, having good credit could help you qualify for lower insurance rates.
If you do apply for financing, a high FICO Score can help you get the best offers. These may include zero-interest financing from retailers or auto dealerships, allowing you to pay off a purchase over time without any additional cost.
Some of the top rewards credit cards also require good to excellent credit to qualify. Or, if you're paying down credit card debt, you may be able to qualify for a balance transfer credit card that offers a promotional 0% rate on balances you move to the card.
How to Stay Scorable During Retirement
Retirees can run into problems if they don't have any active loans or credit card accounts. While your employment and income don't impact your FICO Score, you need to have had an account reported to the credit bureaus within the previous six months to be scorable by FICO.
Fortunately, you don't need to take out a loan or pay interest to meet the requirement. For example, you could use a no-fee credit card for a monthly subscription and pay the bill in full each month to avoid interest charges. The card issuer can then report your on-time payment to the credit bureaus, which adds positive payment history to your credit reports and allows you to remain scorable.
Improving Your Credit in Retirement
Ideally, you won't only be scorable but will have a high enough FICO Score to qualify for the best rates and offers. Fortunately, building and maintaining good credit during retirement isn't any different than in pre-retirement years. Here are four simple steps you can take:
- Review your credit reports for errors
- Pay your bills on time
- Reduce credit card balances
- Don't apply for new accounts unless you need to
Explore the myFICO site to find more in-depth explanations of how FICO Scores are determined and more educational tips on improving your FICO Scores.
Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.