August 24, 2020

Edited 09/30/20

Why Your Credit Score Matters in Retirement

Your credit score is with you for life. Here’s why it’s important to improve your credit score even in retirement.

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Your days of taking on new debt might be behind you. Perhaps your house is paid off, your student loans are paid off, and you’re nearing retirement. As much as you think you’re ready to retire, you still have to maintain your financial identity like your credit score. 

Even in retirement, your credit score still matters for several reasons. Your existing creditors will continue to pull your score from time to time, and they can raise your interest rates if your credit score goes down.

Credit Score in Retirement

Your credit score can still impact your buying power, ability to refinance your mortgage, auto loan approvals, credit card approvals, and premiums for auto and homeowners insurance. A low credit score could interfere with your ability to move to a new home, pay for travel and medical expenses, and cosign on your grandchild’s student loan or apartment lease. 

Retirement could bring changes you can’t foresee now. You might decide to move into an apartment that requires a credit check or apply for a job to supplement your retirement income. Those considering an assisted living facility or nursing home usually undergo a credit check to ensure that they can make timely payments. 

Good credit could help you a lot if some unexpected financial setback or misfortune happens to you, causing you to need a loan from a bank in the future when you’re not working. 

In 2019, the average credit score for people older than 60 was 749, according to Experian, a consumer credit reporting company.

How Credit Scores Work in Retirement

Basically, your credit score will continue to work the same as it did before retirement. Credit scores always reflect how much debt you owe and whether you have paid your debts on time. 

The fact that you are retired (or planning to retire soon) has no impact on your credit scores. This decision does not show up on your credit report, and your lenders won’t know about it. 

Your age does not directly impact your credit score, but the age of your credit accounts do. Therefore, as you continue to age, your long credit history will get an advantage. Keep in mind, banks cannot discriminate against you based on your age or the fact that you’re retired when considering whether to give you credit or a loan, though they will consider your income.

If you continue to pay your debts on time during retirement, your credit scores will continue to improve. If a lack of income in retirement causes you to make late payments, then your credit scores will suffer.

How Can I Improve My Credit Score in Retirement?

If your credit score is bad now, it’s not too late to start improving it. A reasonable goal would be to maintain a debt-to-income ratio of less than 36 percent. 

Try to pay down your credit card debt before you retire, if possible. Pay your bills on time, and don’t carry excessive credit card balances. Don’t close any long-standing credit card accounts. That will hurt your credit score.

Overcome Your Credit Card Debt

Pay off your credit card debt

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If you have credit cards you haven’t used in a long time, consider using them once in a while, and pay that amount in full. Active credit card accounts tend to elevate your credit score slightly more than unused cards. 

Going 100 percent debt-free and using only cash isn’t necessarily a good idea because eventually the credit bureaus will consider you “unscorable,” meaning you would have to build up your credit history all over again. 

You might consider asking a relative with good credit card habits to make you an authorized user on their credit card account. Their reliable payments on that account will improve your credit score.

If you rent your home, you could ask your landlord to report your rent payments to the credit bureaus. Those on-time payments would improve your credit score, as well.

Medical Debt Impact on Credit Score

Keep in mind that medical debt is different from mortgages and credit card debt. Unpaid medical bills are usually not included in your credit report. But if a hospital or physician turns your account over to a collections agency and it gets a court judgment against you, then that record would blemish your credit report. 

The best thing to do if you have unpaid medical bills is to try to work out a monthly repayment plan with the doctor or hospital.

Monitor Your Credit Score Every Year

It’s a wise move to monitor your credit reports every year by using www.annualcreditreport.com. You’re entitled to receive one free credit report from each of the three credit bureaus once per year. 

Check for errors and signs of identity theft. Report any suspicious activity immediately by using www.identifytheft.gov or calling 877-438-4338. 

The bottom line is your credit score matters, no matter what age you are. You should continue to be concerned about how your retirement could impact your credit score. 

Maintaining a good credit score can give you flexibility for the future, as your life and circumstances change. It can help you reach your retirement goals, save money, make purchases when the time is right, and pay for your expenses in the most convenient way for you.