How To Maintain Your Credit Score After Retirement
Written by
Adam Palasciano
Edited by
Nicholas Morine
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Retirement is meant to be a reward for a lifetime of hard work and diligent money management. Hopefully, you’ve saved and invested enough over your career and now your money works for you.
However, one important financial factor can be adversely affected once you retire: your credit score. SmartAsset explained that your credit score can fall faster than you think once you stop working.
Retiring Can Hurt Your Credit Score
First, it’s important to understand how your credit score is calculated. Credit rating agencies weigh your credit score based on five different variables.
- Credit utilization ratio (the amount of available borrowing that you use).
- Your payment history.
- The number of old versus new lines of credit you have.
- The length of your credit history.
- A mix of different types of credit lines.
The ideal borrower typically has a long history of on-time payments, continuously makes monthly payments on a mix of different accounts, has many older lines of credit in good standing, and has a low credit utilization ratio. As a general rule, 670 is considered a “good” credit score, and 700 and above is considered very good.
Unfortunately, calling it quits at work can affect some of these factors for a number of reasons.
For example, entering retirement can mean that you’re debt-free (or you have less debt than you used to). Maybe you’ve fully paid off certain loans like your mortgage or car loan. Or, perhaps you’ve paid off and closed a credit card account that you no longer use. These factors can seriously damage your credit score since you’re no longer making payments on a mix of accounts, perhaps mitigated by the fact that your credit utilization may have decreased.
A low credit score in retirement can make it difficult to move homes or get another car loan, and can also result in higher insurance premiums.
How To Manage Your Credit Score In Retirement
Fortunately, there are some ways to maintain and manage your credit score effectively once you’re retired.
One way is to pay off all of your credit card balances to eliminate any debt you have, but not close the accounts. Instead, use each of your credit cards every so often to keep your accounts active and maintain a healthy mix of different credit lines. Using multiple cards and paying them off in full and on time each month can help maintain a good credit score. It’s a great idea to set your cards to autopay so that you never miss a payment.
Additionally, working with a financial advisor as you approach retirement — and once you’ve retired — is an important factor in maintaining financial stability and longevity in your golden years.
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