How Does Your Credit Score Impact Your Retirement?

Portrait of Senior Man at Home

While you don't need good credit to retire, having good credit can be just as beneficial during retirement as it is during your working years.

For starters, retiring doesn't necessarily mean you aren't using credit or paying down debt anymore. To the contrary, in 2018, Experian found that people ages 55 to 73 had $95,095 in debt on average. The same group had an average FICO® Score of 732—over 30 points higher than the national average.

Retirement also doesn't mean you won't want continued access to financial products or services. Whether you're looking to better manage your debt, need to take out a loan or want a new credit card for your post-work years, good credit can help.

Why a Good Credit Score Is Important in Retirement

Your credit scores continue to play an integral role in determining your options and expenses during retirement. For example, your credit can be important if you want to:

  • Move to a new home. You may want to move to a smaller home or an area with a lower cost of living. Landlords will want to review your credit before accepting your rental application. Or, if you plan on buying a home, your credit can impact your ability to get a mortgage and the interest rate you'll receive.
  • Renovate your home. Perhaps you want to add a room, create a new outdoor space or make other changes to your home. A personal loan or cash-out refinance could help you fund the project. The better your credit, the more likely you'll be able to get approved for a large enough loan with a low rate.
  • Travel the world. If travel is on your to-do list, you might be interested in a rewards credit card that you can use to earn miles, points or cash back. You can then redeem your rewards to cover your travel expenses. The catch? The best cards often require a good to excellent credit score.
  • Pay for medical expenses. Health care costs can rise with age, and having good credit can help if you want to pay a bill over time or are taking out a loan in anticipation of an upcoming procedure.
  • Lower your monthly bills. Lowering your monthly expenses can make a big difference when you're living on a fixed income. With good credit, you may be able to refinance a mortgage or auto loan to lower your interest rate and monthly payments. Or, you could save money by taking out a low interest personal loan to consolidate higher interest debts. Good credit can also lead to cheaper homeowners insurance and auto insurance in most states.
  • Help your family members. Good credit also allows you to help a child or grandchild get their footing by cosigning an apartment lease or auto loan.

Put simply, whether or not you're borrowing money, good credit can give you more opportunities and lower your expenses.

How to Keep Your Score High During Retirement

Maintaining, building and rebuilding your credit isn't any different now that you're retired—the same factors will determine your credit scores.

The good news is that you likely have a long credit history, which can be good for your credit scores. Other important scoring factors include your payment history and credit usage. To address those, you can:

  • Continue making your payments on time. Your payment history is the most important credit scoring factor, and it encompasses all the positive and negative marks associated with your accounts. Making payments on time is best for your credit, while missing a payment, having an account sent to collections or declaring bankruptcy can hurt your credit.
  • Pay down revolving account balances. Your credit utilization rate shows how much of your available credit you're using. Keeping your account balances well below credit limits is best for your scores. Experts recommend a utilization rate of 30% or less to maintain good credit scores. To avoid paying interest on credit cards, try to pay off your balance in full each month.

Other factors can also be important, such as whether you have experience paying off installment loans and managing credit cards (having a mix of accounts can help your scores)—or whether you've recently applied for a new loan or card, which can ding your credit scores a little.

Another thing to keep in mind is that if you're entering retirement without any debt, you may be in a great financial situation. However, without an open loan or credit card, you might not be scoreable because there isn't any recent information in your credit reports.

To maintain your credit without paying interest, you could open a credit card, use the card for a small monthly bill and then pay off the balance in full each month. This can add a current account to your credit reports and help you maintain a recent record of on-time payments and low utilization.

Does Retirement Affect Credit Scores?

Credit scores typically don't consider your age, income or employment. They are only a reflection of how well you've managed debt. As a result, retiring won't have any direct impact on your credit scores. But there could be an indirect impact as you settle into a new lifestyle.

For example, your income could decrease while your expenses stay flat. As a result, you might wind up taking on new debt to fund that lifestyle. Rising credit card balances or missed payments could hurt your scores.

On the other hand, you may be able to better manage your bills and budget after leaving the rat race. Perhaps you can find creative ways to save money to help pay down your credit cards and increase your credit scores as a result.

Continue Monitoring Your Credit

In addition to paying attention to their credit scores, retirees may want to enroll in some form of credit monitoring. Children and seniors tend to be the most at-risk age groups when it comes to identity theft, and retirees who have built up their nest eggs could be prime targets for fraudsters.

A credit monitoring program like the one offered by Experian can send you an alert when there's an unusual or suspicious change in your credit report, allowing you to quickly act to stop an identity thief who opens an account in your name.