Finance

Are you thinking about your credit? You should be.

July 31st, 2020

For most people, retirement brings a big shift to your financial priorities. Once people retire, they usually live on a fixed income. This means they also need to focus more on wealth preservation than their credit score. Despite that, though you might not be borrowing as much, it doesn’t mean that you should stop thinking about your credit score. Your credit score, whether bad or good, can affect you at any age.

Luckily, the way you manage your credit doesn’t change all that much in later life. If you already have a high credit score, it should be pretty simple for you to maintain, as long as you remember to pay attention to it.

Retirement itself doesn’t impact your credit scores—the only thing that will is how you manage any debt or liabilities. Keep making timely payments, and your credit score will reflect it. Even if your income changes in retirement, your score won’t be affected unless you start missing payments.

Other things that determine credit for younger folks, such as age and employment status, won’t count in retirement age. In this case, age actually works to your benefit. The length of time you’ve had your account makes up a significant percentage of the points awarded by credit scoring models. About 68% of consumers 60 or older have FICO scores of 700 or higher. In comparison, only about 30% of 18-29 year olds score over 700.

Here are some mistakes to avoid making with your credit as you get older.

1. Thinking Credit Scores Don’t Matter

Even if you use your credit card less, you should still focus on raising your credit score if it’s lower or maintaining it if it’s good. Your credit can still affect things like auto loan and credit card approvals, insurance premiums, and whether you can refinance your mortgage.

2. Closing Credit Card Accounts

This isn’t a great idea regardless of your age. Closing an account may increase your card debt-to-limit ratio, which is determined by the balances and limits of your existing accounts. Closing an account sometimes causes the ratio to increase, meaning your score will drop.

3. Not Paying Attention to Credit Reports

Even and perhaps especially in retirement, it’s important to pay attention to your credit card statements. Cases of stolen identity and even simple credit errors can drop your score. Be sure to stay on top of your annual credit reports to avoid this stress. Many credit cards offer you free credit reports through their online portals that won’t affect your score.

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