You might not be planning on applying for any loans, but your credit score still matters. At the very least, your existing creditors will still periodically check your FICO score after you’ve retired.
Thankfully, the steps for maintaining healthy credit are basically the same whether you are working or retired. If you’ve managed to keep your credit scores above the subpar mark while you were working, chances are you will be able to keep them healthy through retirement.
How Retiring Affects Credit Scores
Your retirement should not affect your credit scores. You are not even required to let any existing creditors know that you are no longer part of the workforce.
Retirees will also be happy to know that while their personal age won’t affect their credit scores, the age of their credit accounts will. For most retirees, this means higher credit scores reflected by their older accounts.
It is estimated that 68 percent of consumers over the age of 60 boast a FICO score above 700, compared to only 30 percent of consumers ages 18 to 29.
This means that most retirees don’t need to worry about repairing their credit score, only on how to keep it healthy.
6 Tips to Keep Your Credit Score Healthy
Credit scores are calculated the same, whether you are retired or still working.
You should also know what is included in your credit score. Not only will this make it easier for you to see what areas need improvement, but also spot any errors. An error on any one of your three credit reports can significantly affect your FICO score.
Your credit score is comprised of the following,
- 35 percent – payment history
- 30 percent – credit utilization rate
- 15 percent – age of credit accounts
- 10 percent – addition of new lines of credit
- 10 percent – mix of credit accounts
Now that you know what is included in your FICO score, it’ll be easier for you to keep it healthy.
- Know your current credit score.
Your credit score will fluctuate, and this means that it is important for you to check it periodically. If you don’t know what your credit score is, you won’t be able to repair it if there are any problems. You are legally entitled to one free copy of your credit score from each of the three credit reporting agencies.
- Experian
- TransUnion
- Credit Karma
Since your score can vary slightly from each of the reporting credit agencies, it is important that you request a copy from all three.
- Check for errors.
Mistakes in any of your credit reports can occur. This can be anything from incorrect credit limits to payments that were misapplied.
Any errors can cause an unhealthy drop in your FICO score. Disputing any proven mistakes will result in the black mark being removed from your credit score, and this can cause a sudden increase.
- Don’t stop using credit.
One of the most common mistakes retirees make, is to stop using credit. You need to use credit if you want to keep your scores healthy, but you also want to be careful. If your credit utilization rate is too high, it can have a negative impact on your FICO score. Simply continue to make all monthly payments on time, and keep credit card balances low.
- Minimal credit card balances are key.
Most financial experts recommend keeping credit utilization rates below 20 percent. This generally indicates that you can manage your finances. If your credit usage exceeds 35 percent your FICO score will drop. Paying your balances down each month, and on time will help keep your credit healthy after retirement.
- Keep credit accounts open.
A simple way to keep your credit score healthy is to keep old accounts opened.
Part of your overall FICO score is determined by the age of your credit accounts, and closing the oldest ones can cause it to drop. Cancelling the newer charge accounts will also help lower your credit utilization rate.
- Avoid multiple credit checks.
You are allowed to check your credit score from the 3 reporting bureaus once every twelve months, without any negative effectives. However, hard checks by potential lenders can cause your credit score to drop a few points. If you want your credit to stay healthy, it is best to limit the number of times you apply for financing in each year.
Enjoy Retirement with Healthy Credit
If you pay attention to your credit scores after retirement, you can avoid many of the problems that can cause it to drop to unhealthy rates.
It not only affects interest rates and auto loan approval chances, but also insurance premiums. For most retirees, the cost of their insurance is reason enough for them to watch their credit scores.
It doesn’t take a lot of time and effort to keep your credit healthy, and it is worth it when it allows you to relax and enjoy your retirement.