You're golden: Having a good credit score matters even after you retire — here's why
For many Americans, retirement is a rewarding finish line. The job’s over, and it’s time to travel, take it easy and let your hard-earned and well-invested retirement assets carry you into your golden years. Credit score? Who needs it, right?
At the risk of popping your retirement party balloons, building and maintaining a good credit score isn't just for fresh-out-of-school car buyers or mid-life homebuyers. It remains a vital asset even during retirement, opening the door to various financial products and services well into your post-working world.
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Whether it's securing a loan for unexpected medical expenses or obtaining a line of credit for home renovations, having a solid credit history can make these processes smoother and more affordable. Without a good credit score, retirees may find themselves limited in their options and subjected to higher interest rates or unfavorable terms.
The average FICO score for U.S. consumers is 717 as of March 2024, but according to Experian data from Q3 of 2023, baby boomers have an average score of 745 – a favorable score for getting better rates on credit cards and auto loans — and those belonging to the Silent Generation have an average score of 760.
Credit expert John Ulzheimer told CNBC a 760 score will get you the best mortgage rate and a 720 score is sufficient to get the best interest rate for an auto loan.
Why maintaining a good credit score is important
A good credit score can translate into significant cost savings for you and your loved ones. Here are some of the reasons you want to keep your scores up.
Lower borrowing costs
Retirement doesn't necessarily mean an end to borrowing. Many retirees may still require loans for major purchases, like financing a new vehicle. It's not always a smart idea to dip into retirement savings, especially if it involves selling investments. As personal finance writer Amy Fontinelle points out, "Market conditions could make it a bad time to sell investments. Withdrawing a lump sum from a traditional IRA or 401(k) could push you into a higher tax bracket, increase your Medicare premiums, and trigger the net investment income tax."
With a good credit score, retirees can protect their nest egg and benefit from lower interest rates and better terms on loans, potentially saving thousands of dollars over time. These scores can also influence the interest rate and credit limit on a new credit card.
Homebuying and credit scores should be a particular focal point for retirees, who may want to downsize or upsize, buy a vacation home or move closer to grandkids. The difference in the mortgage interest rate with a credit score between 760 and 850 and a credit score between 620 and 639 is roughly 1.5%, per myFICO, which makes a significant difference in monthly payments and total interest paid over the life of the loan.
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Help the kids
Even if retirees don't need to borrow money or rent an apartment for themselves, they may need to help their children do the same. In such cases they may wish to act as co-signers or guarantors, and having a good credit score would be necessary for that. A co-signer on a loan with an excellent score can help a borrower get better loan terms.
Credit card perks
Enjoy the best credit card deals with a good credit score. These can offer lucrative sign-up bonuses, travel rewards, and eliminate annual fees, putting more money back in your pocket.
Reduced insurance rates
Many insurance companies believe clients with lower credit scores are more likely to file claims. For this reason, retirees with good credit can qualify for lower rates on car and home insurance, freeing up their budget for other priorities.
Renting an apartment or moving to an assisted-living facility
Finding the perfect rental becomes smoother with a good credit score. Landlords often use credit scores as a measure of financial responsibility. A good credit score lowers the possibility that you're asked for a larger security deposit. Your credit score may also matter if you want to move to an assisted-living or long-term care facility.
3 credit strategies for retirees
Monitor and manage debt wisely: This involves staying current on existing debts, such as mortgages, auto loans, and credit cards. Timely payments are crucial for preserving a positive credit history and demonstrating financial responsibility. Retirees should also strive to keep their credit utilization ratio low by not maxing out credit cards and avoiding unnecessary debt.
Diversify and keep credit accounts active: Retirees should make sure they use their accounts on a regular basis. They could also diversify by maintaining a mix of credit types, such as installment loans for a home or car and revolving credit (credit cards). Having a diverse credit portfolio shows lenders that retirees can manage various types of credit responsibly, which can positively impact their score.
Stay vigilant against identity theft: Unfortunately, retirees and the elderly are prime targets for scams, such as Medicare identity fraud. Official data from the Bureau of Justice Statistics shows that nearly 1 in 10 adults aged 65 or older fell victim to identity theft in 2020, underscoring the importance of regularly monitoring credit reports and promptly reporting any suspicious activity. Proactively safeguarding personal information and monitoring for signs of fraud can help retirees prevent potential damage to their credit and financial health. Retirees should routinely obtain free credit reports to review their credit report for any inaccuracies. Carefully examine the report for any mistakes, such as incorrect account information, accounts you don’t recognize and negative marks that shouldn’t be there. Each major credit bureau has its own process for filing disputes.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
