May 8, 2020

Edited 10/21/20

How to Choose the Right Credit Card for Retirement

Selecting the right credit card for your retirement can help you save and earn perks.

Credit cards work the same whether you’re retired or employed. But if you plan to make drastic changes to your lifestyle or spending habits after you leave the workforce, the card that’s best for you during retirement may be different than the one you’ve been carrying around for the last couple of decades. Here are a few things to consider when shopping for your new card.

Review Card Features

Credit cards on the market today run the gamut from basic, no-frills options to cards that offer a wide range of benefits. Here are some characteristics to consider when researching your choices.

Rewards and other perks

Some cards offer airline, hotel, general travel and cash back rewards plus additional perks like entry to airport lounges, early access to event tickets, VIP experiences and more when you use them to make purchases. If you want to earn rewards, it’s important to understand the structure and how they’re calculated. 

Some cards offer rewards structures where you earn the same amount on every dollar you spend. Others offer the opportunity to earn more on certain categories, and there are some that have rotating categories that allow you to earn more rewards on certain types of purchases at certain times. It can get complicated, so make sure you understand what you’re signing up for. 

Other things to look out for include how rewards can be redeemed and whether there are limitations on when and how you can use your rewards. 

Interest rates and fees

Credit cards often have different interest rates for different types of transactions, such as purchases, balance transfers and cash advances. And they come with a wide range of fees. Be sure to read the fine print carefully to ensure you understand all the terms and conditions. If you have questions, don’t be afraid to ask. 

If you’re looking to cut your expenses and reduce your debt, you may consider a low interest or balance transfer card. When switching over to these cards, you can pay off your balance with no interest for a certain amount of time. We’ve seen an intro period last anywhere from 6 to 21 months. Determine how long it will take for you to pay off your balance to see which credit card is best for you. Therefore, you are saving more each month by not accruing any interest on your debt.

Credit requirements

Just like when you apply for a loan, credit card issuers check your credit before making an application decision. Different companies have different requirements and different cards offered by the same issuer may have different credit criteria. Review credit requirements for cards you’re considering can help you determine how likely you are to be approved.

Consider Your Lifestyle and Spending Habits

To find a credit card for retirement that’s a good fit, it’s important to be honest about how you plan to use it. The type of card that’s right for you depends largely on your lifestyle and spending habits. If you plan to travel when it’s safe again, a card that offers travel rewards and doesn’t charge a foreign transaction fee might be right for you. Loyal to a particular hotel or airline? Then a card that offers hotel or airline rewards may be a good fit. 

On the other hand if you plan to spend most of your time volunteering or pursuing hobbies you didn’t have time for when you were employed, a cash back rewards card that lets you use your rewards on anything you want may be a better choice. Rewards cards often come with an annual fee. Before applying for one, do the math to make sure the rewards you’ll earn outweigh the fee you have to pay each year. 

If you typically carry a balance on your credit card, opting for one with a lower rate is probably a better choice than selecting a credit card for retirement that has lots of bells and whistles but charges a higher rate. On the other hand, if you pay your bill in full every month, a card with a high rate might not be a big deal.

Do Your Homework

There are hundreds of credit cards on the market available from a variety of issuers ranging from large national banks to your local credit union. Larger issuers typically have a wider variety of cards to choose from. But that doesn’t mean you should rule out your local financial institution. Credit cards available through credit unions often have lower interest rates and some even offer rewards, giving you the best of both worlds. 

No matter where you choose to apply, it’s important to do your homework before submitting an application. Read the fine print and weigh the costs of using a credit card with the benefits you’ll receive. 

Applying for a Credit Card in Retirement

If you plan to get a new card while enjoying your golden years, there are a few things to keep in mind. 

  • It affects your credit. Applying for a credit card will affect your credit score, so it’s important to apply sparingly. Platforms, such as Credible, allows you to compare credit cards to see which one is best for you before applying. After doing your research, select your top one or two choices and apply only for those. 
  • The application process is the same. Whether you apply for a credit card before or after you retire, the process doesn’t change. You must submit an application, which includes personal, financial and employment information (if you’re still working). The credit card company will review your application and check your credit to determine whether you’re approved.
  • A change in income may affect your ability to qualify. It’s possible to get a credit card after you retire. But one of the things credit card companies review during the application process is whether you have adequate income to pay your bill each month. If you apply after you retire, you must show that you earn enough to make your payments. Instead of providing pay stubs like you would if you were employed, you’ll need to show sources of retirement income, such as social security, pensions, dividends or interest payments.

If you decide that getting a new credit card for retirement is right for you, consider keeping your old accounts open and using them from time to time. Closing old accounts may shorten the length of your credit history, which can negatively affect your credit score.