Retirement is supposed to be about fully embracing the best parts of life. But for some, it can fall short of that dream, all because of one important number: your credit score. It may not seem all that important, especially if you have no plans to take out a loan, but a score that falls short of the "good" or "excellent" credit brackets can limit access to assisted living facilities, low insurance premiums, and other financial safety nets.
Here are six areas where credit scores can impact your retirement, as well as tips for managing your score:
1. Insurance premiums
Insurers use your credit history, among other factors, to determine how much you pay for coverage. And, for things like car insurance, those rates are recalculated annually. So factors that lead to a dip in your score, like making late payments or closing old accounts, which can happen in retirement, can lead to higher premiums.
According to a recent report, those with poor credit scores pay an average of $144 more per month than those with good credit.
2. Access to a financial safety net
Most retirees plan on having a certain amount of money at their disposal to cover everyday expenses. But if something unexpected happens (such as a medical emergency or the need for a new car), and you simply don't have the cash on hand to cover it, you may need to rely on something like a personal loan. If your score isn't as high as it could be, however, it might be difficult to qualify, or you may have to pay more to borrow.
3. Estate planning
For the most part, credit scores don't impact your estate plans during your lifetime. However, if a loved one passes away without a will, you may not qualify to make decisions for their estate if you have bad credit. That's because you'd typically need to be approved for a "surety bond" (also called a probate bond) before being named administrator. A surety bond's approval is credit-dependent (though sufficient assets may qualify).
According to data from the Center for Retirement Research, only 63% of those over 70 had a will as of 2018, compared to 72% in 2002. A high credit score can ensure you get a direct say in what happens to your loved one's estate.
4. Utility company security deposits
Some utility companies may require a security deposit if your credit doesn't meet their standards when you apply. That means more of your money wrapped up in a potentially unnecessary expense instead of being used to grow your retirement funds or going toward travel expenses.
5. Access to credit card travel rewards
Many credit cards offer travel rewards, but if you don't already have those cards in your wallet, you'll have to apply. And many credit cards simply won't accept applicants who have credit scores below a certain threshold.
6. Retirement community and assisted living facility access
If your situation changes and you need to move to a retirement community or assisted living facility, you will typically be required to go through both a background and a credit check. So, if your score isn't high enough, you may find it difficult to get in.
Tips for maintaining or improving your credit score in retirement
The first step to getting a handle on your credit score is tracking it. There are several free avenues for doing this, including free weekly credit reports from annualcreditreport.com as well as many credit card company tools. For reference, a "good" FICO score starts at 670, but the higher your score (up to 850), the better. And the following factors shape that score:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Credit mix
Once you know where you stand, you can take targeted steps to either keep your score high or raise it. Every retiree would benefit from paying all bills on time (autopay is useful here) and keeping their oldest credit accounts open (try using them for small purchases every few months). But someone who has a higher credit card balance is going to benefit more from paying that off than someone with a lower balance.
It's also vital to carefully consider what debt you pay off. For instance, if you have credit cards (revolving loans that you draw against and pay back as needed) and a car loan (an installment loan with a fixed payment and payoff schedule), paying off the car loan means you only have revolving loans on your profile, which could result in a lower score. So, in that case, reducing the credit card debt would be a smarter move for your score.
It's also a good idea to regularly review your credit report for errors as well as fraudulent activity in order to catch them before they have a chance to do real damage to your credit.