5 reasons you need good credit in retirement
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As a young adult, you may have dutifully established a credit profile and score worthy of obtaining the best rates for a mortgage, car loan and a handful of credit cards. It's now years later and perhaps your home and car-buying days are behind you, so why is it important to keep your credit score in tiptop shape as you enter retirement?
"Some people in their 50s and 60s think that they no longer need to be concerned about good credit scores, especially if they own their homes," said Kevin Gallegos, consumer finance expert and vice president of Phoenix operations for the Freedom Financial Network. "However, a good credit score can significantly impact an individual's ability to borrow any money -- as well as the interest rate he or she will pay."
If don't open new lines of credit right when you enter retirement, that doesn't mean you won't want or need to later.
"Even though you are going into retirement you are not dying," said Richard Eisenberg, editor of Money & Security for NextAvenue.org, a public media resource for aging consumers. "You are going to be doing things."
Many of those things may involve credit, such as finally starting that small business you've always dreamed about or moving closer to your children and their families. However, without a good credit score, financing such activities may prove difficult with a limited retirement income.
Here are a few examples of how a good credit score can benefit you and your wallet during retirement:
Even though you are going into retirement you are not dying. You are going to be doing things.
|-- Richard Eisenberg
1. Reduced travel
"If you use a credit card to reserve a hotel or airline, you can take advantage of airline points or miles, hotel rewards point programs and get additional travel insurance," said Rod Griffin, director of public education for Experian. "So using credit as a financial tool rather than as something to pay expenses and take on debt is important in retirement."
2. Lower insurance
Even if your vehicle and home are paid off, you'll still need insurance and a good credit score can help keep premiums low if your insurer uses a credit-based insurance score. According to the National Association of Insurance Commissioners, approximately 95 percent of auto insurers and 85 percent of home insurers use credit-based insurance scores to determine how much of a risk you are financially.
Although credit-based insurance scores are not FICO scores, they still incorporate many aspects of your traditional credit score, such as payment history, credit history length and the number of recent credit inquiries. The use of credit-based insurance scores has been banned in Massachusetts, Hawaii and California, but if you live in one of the other 47 states, maintaining a solid credit profile and credit history may improve your insurance premiums and help keep costs low during retirement.
3. Family care
Without a full-time employee paycheck to fall back on, if you need a lump sum to get a loved one out of a financial bind, you may have to dip into your savings unless you have credit available.
Recently retired 57-year-old Janet Nast's two children are all grown up, but when they need help from Mom, Nast's credit comes in handy.
"I can take out a loan and simply change the mailing address of that bill to their home until they pay it off," said Nast, author of "Shifting to the Business of Life, A Survival Guide for Young Adults." "I love being able to help them out in my 'old age,' as I feel that's what parents should be able to do."
A good credit score can also help you get lower interest rates if you choose to co-sign a loan with your child or grandchild, although be aware that should that child or grandchild default, repayment responsibility will fall on your shoulders.
One never knows when they might find themselves in need of major car repairs, a new home or major medical issues and there's just not enough cash available.
|-- Janet Nast
Author and recently retired 57-year-old
4. Moving or
Whether you're chasing warmer weather or just looking for a smaller home to save money, a move will almost always require a credit check. Both landlords and loan issuers will want to make sure you can afford your new living quarters and can be trusted with the responsibility of a lease or mortgage.
Over the past few weeks, Nast and her husband moved and downsized, going from California to Washington and into an apartment for the first time in more than 25 years while they pursue plans to build a new home.
"Although we are now on a very reduced and limited income, we still have very good credit, and a good amount of available credit," said Nast. "This is how we were able to rent an apartment and begin talks on having a new home built."
5. Cover emergency expenses
Even if you aren't actively taking on new credit during retirement, you never know when you might need it.
"If there's one thing I've learned during my life it's that stuff happens -- unexpected stuff," Nast said. "One never knows when they might find themselves in need of major car repairs, a new home or major medical issues and there's just not enough cash available. There are many valid reasons to have credit at your fingertips, especially if things happen on a holiday or weekend. Besides, can you -- or would you -- pay cash for these things at the drop of a hat?"
So you may be about to retire but your credit isn't -- and shouldn't. Here are some tips for preparing your credit for your upcoming retirement and how to maintain the credit score you've worked to build up for so many years:
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- Credit scores: Is 1 percent utilization better than 10 percent or zero? – Carrying over a tiny card balance can give you a credit score boost, but paying in full is better for your financial health ...
- Goodwill letters: A note can get a credit blemish wiped away – A goodwill letter can help you get an uncharacteristic slip-up removed from your credit report, but it's not a sure thing ...