How to Maintain Your Credit in Retirement
Keep following the good habits that helped you establish good credit before you retired, and you should be in good shape even after you stop working full time.
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There are many financial details to manage when you approach and begin retirement. Yet as you make plans to preserve your wealth throughout this new season of life, you don't want to forget the importance of maintaining your credit as well.
A good FICO® Score can be a valuable asset, both before and after you retire. Depending on your situation, you might not plan on applying for mortgages, auto loans, or other types of financing as often after you stop working full time. Yet even if that's true, there are still plenty of reasons credit matters during retirement.
A recent Wall Street Journal article points out that your credit could affect many insurance and healthcare decisions during your retirement years, such as whether an assisted-living facility might accept you as a resident in the future. A good FICO® Score might also provide you with more financing options to cover medical expenses. And if you're looking to downsize, purchase a vacation home, or you want to cosign for a child or grandchild, your FICO Scores could come into play in these situations too, along with others.
Maintaining your credit in retirement is in your best financial interest. Below are four simple tips to help you accomplish this important goal.
Make Sure to Stay Credit Active
To meet the minimum scoring requirements for a FICO Score, you need to stay credit active. In other words, your credit report needs at least one account that has been updated/reported to the credit bureau within the previous six months in addition to one account that has been open for 6 months or greater.
The good news is that staying credit active doesn't require you to go into debt. You can also accomplish this goal without paying one dollar in interest charges.
One potential way to stay credit active could be to use a credit card with no annual fee. When you do use the account, it's wise to pay off the full statement balance each month by the due date. This method of credit card management should help you avoid credit card interest charges (and fees with the right type of account). Meanwhile, you could remain eligible for a FICO® Score if the card issuer reports the account to the credit bureaus on a regular basis.
Avoid Late Payments
Payment history makes up 35% of your FICO® Scores—a fact that remains true before and after you retire. As a result, avoiding late payments is essential if you want to maintain a good FICO Score during your retirement years.
It's also important to keep this detail in mind before you consider cosigning a loan or any other type of credit obligation for a family member or friend. When you cosign a loan you are legally liable for that debt. Any late payments that the primary borrower makes on that credit obligation would typically show up on your credit report as well. Those late payments would not only have the potential to damage your friend or family member's FICO® Scores, they could also damage your FICO Scores too. If a late payment does appear on your credit report, it usually remains there for up to seven years.
Keep a Low Credit Utilization Ratio
Another key to maintaining your credit in retirement is to pay attention to your credit utilization ratio. Your credit utilization ratio describes the percentage of available credit you're using on revolving credit card accounts.
The amount of debt you carry determines 30% of your FICO® Scores, and your credit utilization ratio on revolving accounts is an important factor in this scoring category. Using a low percentage of your available credit card limits can have a positive impact on your FICO Scores.
It's also important to be careful about closing credit cards during retirement, especially paid accounts with zero balances. Closing a credit card won't help your FICO® Scores. In fact, when you close a credit card it might cause your overall credit utilization ratio to spike. If this happens, there could be a negative impact on your FICO Scores instead.
Continue to Monitor Your Credit
There's one more rule that's important to follow during retirement where your credit is concerned. You should continue to monitor your credit reports from all three major credit bureaus—Equifax, TransUnion, and Experian.
Consumers have the right to access free credit reports from each credit bureau once every 12 months. The Fair Credit Reporting Act (FCRA) requires the credit bureaus to offer these free reports to consumers, and you can claim yours by visiting AnnualCreditReport.com.
Once you download your credit reports, look for any signs of identity theft or credit errors.
Accounts that don't belong to you, credit inquiries you didn't initiate, names or addresses you don't recognize, incorrect account details, and other questionable information are all red flags to look for when you review your credit reports. Thanks to the FCRA, you have the right to file a dispute with the credit bureaus and with the company that furnished the information to the bureaus if you disagree with the accuracy of information that appears on your credit report.
Bottom Line
Maintaining good credit during retirement isn't complicated. It simply requires you to continue many of the same smart habits that you used to build good FICO® Scores in the first place.
You might not be using your credit as often as you did in the past, but it's important to remember that your credit still matters later in life. Even in your retirement years, good credit might still save you money and open the door to opportunities that you might miss out on otherwise. Therefore, it's worth putting in the effort to make sure you keep your credit reports and FICO® Scores in the best shape possible.
Get your FICO® Score from FICO, for free. No credit card required.
Michelle Black, Founder of CreditWriter.com is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.