How Credit Card Needs Change in Retirement

How Credit Card Needs Change in Retirement loading="lazy"

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Retirement means the free time to do whatever you want. For many retirees, that includes traveling, making home improvements, or refinancing or downsizing their home. Credit cards can be a valuable tool in making these dreams a reality, and proper use of your cards can help you maintain good credit in retirement. However, your credit needs will be different from those in your working years, so you might want to take a second look at the cards you carry and how you use them.

Get at Least One Credit Card in Your Own Name

If your spouse or partner dies, you won't be able to use their credit cards unless you were a joint account holder. But joint credit cards are rare these days; typically, one person is the primary cardholder and the other is an authorized user. (You can contact your credit card company if you're not sure.)

When one spouse is the primary cardholder on all the couple's credit cards, their death can leave the surviving spouse without access to credit at a time they may need it to pay funeral and other costs. Prevent this added stress by making sure each of you has at least one credit card in your own name.

Consider Rewards Cards to Fit Your New Lifestyle

You may want a new credit card with benefits that suit your new lifestyle. If your plans include travel, consider a travel rewards card.

The Capital One Venture Rewards Credit Card earns 2 miles per dollar on all purchases with no limits. Spend $3,000 on the card within the first 3 months and get 60,000 bonus miles; or spend $3,000 within the first 3 months and get 50,000 bonus miles. Miles transfer to more than 15 travel loyalty programs and can be redeemed for flights, vacation rentals, car rentals and more. Cardholders get a statement credit of up to $100 for an application for TSA Precheck or Global Entry every four years.

The Chase Freedom Unlimited® card earns 5% cash back on travel purchased through Chase, 3% cash back on dining at restaurants and drugstores, and 1.5% cash back on all other purchases. There's also a 0% introductory annual percentage rate (APR) on purchases for 15 months from account opening, with an ongoing variable APR of 14.99% to 23.74% kicking in after that. Card benefits include protection for new purchases with the card for 120 days against damage or theft (up to $500 per claim and $50,000 per account), plus extended warranty protection that lengthens the U.S. manufacturer's warranty by an additional year on eligible warranties of three years or less. The account also comes with fraud monitoring and identity restoration services.

Are you trying to consolidate high-interest credit card balances? Is a big expense, like a medical procedure or home remodel, on the horizon? The Citi® Diamond Preferred® Card, from our partner, offers a 0% intro APR on purchases for 18 months and on balance transfers for 18 months from the date of first transfer (for transfers completed in your first four months with the card). After that, the card's ongoing variable APR of 13.74% to 23.74% kicks in. That gives you plenty of time to pay off a big balance without incurring interest. This card has a balance transfer fee of 3% of the transferred balance, with a $5 minimum.

Rewards cards typically require good to excellent credit. Check your credit score before applying to see if you're likely to qualify and, if necessary, take steps to improve your score. You can visit Experian CreditMatch™ to get matched with cards based on your credit profile.

Keep Credit Card Accounts Open

As you apply for new credit cards, it's generally best to keep your old credit cards open. Although you may not plan to use them, closing credit accounts can lower your credit score for several reasons.

Credit utilization, which measures how much of your available credit you're currently using, is an important factor in your credit scores. Closing a credit card could easily drive up your credit utilization ratio and cause your scores to fall. With more credit available, it's easier to maintain a credit utilization rate well below 30%—any higher and it can really start to drag down your score.

Credit utilization works like this: If you have three credit cards, each with a $5,000 limit, you have $15,000 in available credit, which means you could carry balances totaling $4,500 across your cards without excessive credit utilization. Close one of those cards, however, and your available credit shrinks to $10,000. If that $4,500 balance remains the same, your credit utilization rate jumps to 45%.

Another important factor is the age of your credit accounts, which makes up 15% of your FICO® Score . Longer credit histories can help you achieve higher credit scores. However, closing an account will cause it to eventually be removed from your credit report and reduce the overall age of your credit accounts, which can negatively affect your credit score. Accounts closed in good standing remain on your credit report for up to 10 years, but their positive impact on your credit score can be lessened.

Maintain Good Credit Habits

People tend to see an income reduction in retirement. This can increase your debt-to-income ratio (DTI), which measures how much of your monthly income goes to pay debt. DTI isn't a factor in your credit score, but lenders often consider it when evaluating credit applications. Lender criteria vary, but in general, a DTI of 43% or more can make it harder to get credit.

Minimize your DTI by paying your credit card balances in full each month. This also reduces your credit utilization ratio, and potentially benefits your credit score. If you must carry a balance, keep it as low as you can and pay it off as quickly as possible; higher credit utilization generally has a negative impact on your credit scores.

You can also use credit cards strategically to improve your credit score. Retiring debt-free is commendable, but it's important to maintain some activity on your credit cards so they aren't closed or their credit limits reduced. On-time payment history is a major factor in calculating your credit score, and it's important to have a recent track record to show.

If you plan to severely reduce your reliance on your credit cards, it's often wise to use them for small monthly bills, such as a charitable contribution or newspaper subscription, and pay the balance in full every month. Set up auto-payment to ensure you don't miss a due date.

Monitor Your Credit

Retirees are often targeted for identity theft and other scams. Keeping an eye on your credit can help protect you. Review your credit card, bank account and investment account statements as soon as you receive them to spot any suspicious transactions. Better yet, sign up to access your accounts online so you can check them whenever you want.

You should also review your credit report occasionally by getting free copies through AnnualCreditReport.com or directly through Experian. Look for any questionable activity, such as new accounts opened in your name. Setting up free credit monitoring can help provide peace of mind without much legwork.

In the Cards

Credit cards can make travel easier and safer, help you cover unexpected expenses and even earn you some valuable perks. Using credit cards responsibly can also help maintain the good credit you need to get the most from retirement. A healthy credit score, like a healthy body, can help make retirement the golden years.