By If you’re nearing retirement or settling comfortably into your golden years, it’s no secret that your finances will change. After all, you’re no longer looking for full-time work or receiving regular income. With that in mind, you may wonder whether your credit score plays a role. And the truth is, even in retirement, your credit score can impact your access to loans, housing options and insurance rates. Here, financial experts explain how your retirement affects your credit score and how to maintain a positive financial footing for the long term.
What is a credit score and why does it matter in retirement?
Simply put, your credit score shows how financially responsible you are to firms that lend you money. “Five main categories determine the score, and the higher it is, the likelier a borrowing institution will lend you money or offer you lines of credit at more favorable interest rates or for higher amounts,” says Gloria Garcia Cisneros, CFP, wealth manager at LourdMurray.
Those five categories include payment history, amount owed, length of credit history, mix of credit in use and new credit, explains Elise Diaz, a financial advisor at Northwestern Mutual. She says scores typically range from 300 to 850, with those on in the 700-800 range being more beneficial.
Does retirement affect your credit score?
Retirement doesn’t directly affect your credit score. Why? Your income and job history are not on a credit report. However, there can be an indirect impact.
“You must use credit products to build and maintain a credit score,” says Erica Sandberg, consumer finance expert at CardRates.com. “If you abstain and only use the cash accumulated, that information will not be input into a score. You’ll stay out of debt and will never pay interest on revolving balances, but you can lose scoring points.”
Additionally, the financial changes in retirement can also play a role. The two main ways are the credit utilization ratio and payment history. “If you start relying more on your credit cards, the amount of credit you are tapping into compared to your available credit limit will increase, which is a key driver of your credit score, says Cisneros.
She notes that for payment history, when your income sources change from a paycheck to pulling from your Social Security, it can be an adjustment period. As a result, it might be difficult at first to keep up with bills, or easy to miss a payment, and timely payments are another large driver of your credit score.
3 smart ways to maintain your credit score in retirement
Maintaining good financial habits during retirement is essential to keeping your credit steady. Diaz recommends working with a financial planner to create a personalized budget and offer guidance as you navigate this stage of life. Here are some key tips for keeping your credit score in check:
- Treat a credit card like a debit card: “Only swipe it if you have the funds to pay it off in the checking account,” says Cisneros. Otherwise, debt can easily rack up.
- Review your bills: Cisneros suggests looking at any recurring expenses tied to your credit cards before retirement to account for those costs as you map out your “budget” and can make sure to pay off the cards every month.
- Be vigilant about fraud: Pay close attention to all activity on your credit card bill because some fraudsters focus on retirees. “If they get your credit card information, they can make purchases, leaving you with a high bill that can negatively impact your credit scores,” says Sandberg.
The bottom line on retirement and credit
One piece of advice? Try not to fixate on credit scores too much. Sandberg says to remember that these numbers really only serve a specific purpose. It’s for lenders to determine whether or not you qualify for a credit card or loan, and the terms if you are eligible. Therefore, your scores will be irrelevant if you are not in the market for a credit card or loan. You can still get a loan in retirement if you qualify, but it may be more difficult based on your income level.
