USA   |   UK   |   Australia   |   Canada
ADVERTISEMENT

Keeping your credit score high in retirement

Review your cards, keep debt low and you'll be fine

By

Let's Talk Credit
Let's Talk Credit columnist Jane E. McNamara
Jane E. McNamara is president and chief executive officer of GreenPath Debt Solutions, a nationwide, not-for-profit, providing financial literacy through consumer education and counseling for more than 50 years. For financial literacy tips and assistance visit GreenPath on Facebook or YouTube.
Ask a question.
'Let's Talk Credit' archive

Question for the CreditCards.com expert

Dear Let's Talk Credit,
I am confused about whether to close credit card accounts that I do not use. I have an excessive amount of money, more than $100,000, in available credit on the cards, if I was crazy enough to max them out. Some of them my husband used when he was in business, but he's retired now. We both are retired, and I just need to know whether to call and cancel or leave them alone. I owe about $1,800 total on all the cards. -- Elizabeth

Answer for the CreditCards.com expert

Dear Elizabeth,
All that available credit certainly can be tempting! I know you are only joking about maxing out credit cards -- that's never a good idea, particularly when you are retired. In fact, I would encourage you to pay off the $1,800 in balances that you currently have on your cards and, in the future, only charge what you can pay off in full each month.

Now, for your question. During your retirement years, keeping two or three open credit card accounts with reasonable credit limits makes sense. Credit cards provide the convenience of paying with credit without having to carry cash, as well as the added benefit of any reward programs and the consumer protections that apply when purchasing goods with credit. However, you don't need or want access to more than $100,000 of credit.

Several things should be considered when choosing which cards to keep open:

First, try to keep your oldest accounts open. Length of credit history is a factor in your credit score. Positive, closed accounts are generally removed from your credit report after 10 years, so you would eventually lose all that positive credit history.

Second, take a look at how you plan to use the cards and review any fees associated with the accounts. For example, if your rewards card has a hefty annual fee, you should decide if you are receiving enough benefit in exchange for the annual fee.

Finally, keep in mind that closing all but two or three of your accounts may negatively affect your credit utilization ratio and, in turn, your credit score.

Currently, you have more than $100,000 in available credit and have only used $1,800 of it. This means your credit utilization ratio is very good at around 2 percent. Should you decide to close some accounts to give you access to only, say, $4,000 in total credit, your credit utilization ratio would be high at 45 percent and may lower your credit score, at least temporarily.

The ideal ratio is less than 10 percent of available credit used. So maybe a good target for you is a credit line of $20,000. Of course, once you pay off the $1,800, you will not be carrying any balances, so lower credit limits won't be an issue for your credit utilization ratio and would no longer negatively affect your credit score.

Good luck and thanks for writing! Let's keep talking!

See related: How credit utilization impacts your credit score

Published: May 23, 2013



Join the discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Three most recent Lets Talk Credit stories:

Share This Story




Follow Us!


Credit Card Rate Report

Updated: 10-25-2014

National Average 15.07%
Low Interest 10.37%
Business 12.80%
Balance Transfer 12.82%
Student 13.14%
Cash Back 14.98%
Reward 15.05%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

ADVERTISEMENT
ADVERTISEMENT