Good credit is an important part of your financial health. Your credit score affects your ability to borrow and the interest that you pay for loans and credit cards. That is important if you need a loan to start a business, finance a purchase of a car or buy a house.
Building good credit habits early in life can lead to a stronger score and your credit still needs to be nurtured once you reach retirement. While you may not have immediate plans to borrow, there are a number of important credit score questions to consider later in life.
1. Will Closing Credit Card Accounts hurt my score?
Closing credit card accounts with retirement can affect your credit score if you still carry a balance with you when the account is closed. That is because an important part of your credit score is based on your credit use ratio. This is the amount of available credit you use.
Closing accounts while you still have a balance directly affects your usage ratio, which in turn can negatively impact your credit score. If you are thinking about closing a credit card in retirement because you no longer intend to use it, you must pay off the balance first to minimize any negative impact of shrinking your overall credit limit.
2. Is Credit Matter for Tapping Home Equity?
Withdrawal can give you the time you need to finally get those home upgrades or repairs that have been on your to-do list. If you are mortgage-free or you have collected a significant amount of home equity, you can borrow against it through a home equity loan or line of credit to cover the costs. If that is the case, your lender will absolutely consider your credit rating as part of the application and approval process. A good credit score can facilitate approval and a lower rate and on what you mean to borrow.
But, this is one of those credit score questions that can have multiple answers. If you need to generate an additional income stream in retirement, a reverse mortgage is another way to access the equity of your home. The difference is that your income and credit score are less important in this scenario. In fact, there is no minimum credit score required to obtain a reverse mortgage.
3. How can cosigned Loans Affect Credit Scores?
This is one of the most important credit score questions to ask if you are co-signed on a car loan, home loan or student loan for one of your children or grandchildren. Co-signing a loan, either prior to or retiring, can have serious consequences for your credit score.
As a co-signatory, assume that you have shared legal responsibility for the debt, even if you are not the one who reimburses it. If your co-signer defaults on a loan that you have signed your name, collection agencies may require you both to recover what is due. That also applies to being subjected to a civil collection lawsuit. If a judgment is introduced against you, you run the further risk that your individual retirement account or other income will be topped, or your bank account frozen, depending on where you live. (Note: No state states to garnish 401 (k) assets or social benefits for collection.)
4. Will Credit Scores affect my insurance rates?
If you hope to save money on the car or withdraw homeowners insurance, your credit score matters. With the exception of Hawaii, California and Massachusetts, each state allows auto insurance companies to check your credit prior to approving you for a policy. Your score can also be considered for homeowners insurance.
Insurers use your credit profile to measure how much of a risk you are and how likely you are to make a claim. A strong credit history and a good credit score can help you secure a lower rate on insurance, while a lower credit score can lead to higher premiums or even a denial of coverage.
5. Is Travel a major part of my Pension plans?
Traveling the world is a goal that many retirees share, but it can be expensive. Opening a travel credit card that has miles or points on purchases, as well as other money-saving travel perks, can be a great way to see the sights without draining your apple for the thirst. The kink in the cable, however, is that many of the top shelf travel cards that offer premium rewards and benefits should you have excellent credit eligibility.
Your credit score also affects the annual price you pay for a travel rewards card. Paying your balance in full every month is the best way to avoid the interest charges, but if you are charging a more expensive trip, you may need a little more time to pay it off. That’s when your credit score can make a difference in how much the interest charges add to the total.
6. What is the best way to Maintain good credit in retirement?
When asking credit score questions, it is important to think about the credit habits that you have already developed. If you are retiring with a good score, then maintaining that score is a matter of the same practices.
- Paying your bills on time
- Keeping a credit card balances low
- Applying for new credits sparingly
- Keeping older accounts open
- Using different forms of credit
If your retirement credit score is not as high as you want, you can also adopt those same habits to improve your credit rating. Also don’t forget to check your credit regularly in retirement. That means keeping track of your score from month to month, as well as checking your credit report regularly for any warning signs of identity fraud. The sooner you spot a credit red flag, the faster you can take to prevent an identity thief from destroying your score.