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As you begin to approach retirement you’re likely thinking more about wealth preservation than you are about credit scoring. Your borrowing days may be behind you. Even after retirement, however, your credit scores still matter for a variety of reasons, not the least being that your existing creditors will continue to pull your scores from time to time.
The bottom line is we should continue to be concerned about how retirement will impact our credit scores. Thankfully the recipe for maintaining good credit scores is essentially the same whether you are a young adult or a retiree. If you’ve figured out how to achieve high credit scores prior to retirement, then the odds are pretty good that you’ll maintain pace well into your golden years.
The good news for those who have recently retired or are planning to retire soon is that the act of retirement has zero impact upon credit scores. Your decision to retire does not show up on your credit report and, unless you choose to tell them, your lenders are also none the wiser. Because your decision is not “on record” anywhere with the credit bureaus your scores are not impacted.
Credit scores are affected by how you manage your liabilities and how much debt you owe. If you keep making your payments on time, your scores will continue to benefit. If retirement leads to a lack of income such that you start making late payments, then your scores will suffer.
Additionally, if you carry a large amount of credit card debt relative to your credit limits then your scores will suffer. If you’ve prepared for retirement by getting out of debt then your scores will benefit. If you’ve paid special attention to paying down credit card debt, at any age, you can almost certainly expect your credit scores to improve.
Credit scores are determined based upon a variety of factors, however your own age and your employment status are not considered. Even your income, or lack thereof, is not a factor in determining your credit scores. As such the three most considerable differences between a retiree and someone much younger are meaningless to your credit scores.
The news gets even better for retirees, because even though your personal age does not have any impact upon your credit scores, the age of the accounts on your credit reports does have an impact. A meaningful percentage of the points awarded by FICO and VantageScore’s credit scoring models are determined based upon the age of your credit history. It makes sense to assume that retirees will have older credit histories, and this will be reflected in their credit scores.
According to FICO, creators of the FICO credit scoring system, “In general, older consumers score higher than younger consumers.” Approximately 68% of consumers who are older than 60 have FICO scores above 700, with about half of them scoring over 800. Compare that to the 18–29 year old range where roughly 30% score above 700, with about 2% scoring above 800.
Even after you retire it is still very important to maintain good credit scores. Credit scores still have the ability to impact many areas of life after retirement including your ability to refinance your mortgage if rates drop, auto loan approvals, credit card approvals, and even your insurance premiums.
Closing credit card accounts can be a very bad idea at any age. When you close a credit card account it has the ability to increase your credit card debt-to-limit ratio (the relationship between your credit card balances and the limits on your open credit card accounts). If you close unused credit cards and that ratio increases then your credit scores will almost certainly drop.
It is important to protect yourself from credit errors and identity theft in retirement. Credit report errors and identity theft both have the ability to drop your credit scores quickly. At a minimum, you should stay in the habit of checking your three credit reports each year at www.annualcreditreport.com.
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