Out of the many concerns that may cross your mind as you are approaching retirement, and one that you may not be considering, is your credit score. After all, retirees aren’t exactly known for taking out new loans or credit cards.
However, there are good reasons to maintain a solid credit score (or even to try to improve it) as you grow older. Here are a few things to consider:
- The application process for a long-term care residence, such as a continuing care retirement community, typically involves running a credit check.
- You may need to borrow money after all for medical bills. It sure doesn’t sound like fun, but a 65 year old couple who retired in 2020 can expect to pay up to $295,000 for healthcare costs before they die. And that figure doesn’t even include long-term care expenses.
- You may want to buy a second home, a vacation home, or other properties after you retire. The mortgage application process includes several rounds of credit checks, and your credit score directly affects how much you are eligible to borrow as well as the interest rate you’ll pay on your mortgage.
- In many states, your credit score may affect your car insurance rates.
Why You Should Leave Credit Lines Open
While many people aim to pay off as much debt as possible before or shortly after they retire, having zero debt — or at least no active credit lines — can significantly affect your credit score and ability to borrow in the future.
Should you need to borrow money but your mortgage and other loans have long been paid off, you may have trouble qualifying due to how credit scores are calculated. This is one of the reasons why deciding whether to pay off your mortgage before you retire can be challenging
FICO, the data analytics company behind the famous score, provides consumer credit scores to lenders to help them determine how much credit they should extend to an applicant. FICO requires that your credit report shows activity at least once every six months to assign you a credit score. Additionally, the credit line must be at least six months old to qualify for scoring. If you haven’t had any activity on your credit report for years, establishing new credit may be difficult – in some cases, almost like starting from scratch.
Protecting Your Credit Score Should Be Part of Your Financial Plan
If you’re approaching retirement and are trying to decide on the best approach to dealing with any debt you have while maintaining a good credit score, you’ll want those to be made as part of a comprehensive financial plan that takes your entire financial situation into account.
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