Don’t Risk Your Credit Score in Retirement
Those who are 65 or older sometimes feel that the days of checking their credit scores are behind them, particularly if they've already retired and they aren't planning any major purchases. But there are many good reasons to continue monitoring your credit into retirement, and the importance of a credit score is still relevant long after you stop working. Keeping track of your credit score can help you prepare for emergencies, take advantage of credit card rewards, and protect yourself against identity theft. It also gives you the capability to use credit as an effective tool for maintaining financial wellness.
Why Checking a Credit Score in Retirement is a Smart Practice
Checking your credit score allows you to catch errors and possible instances of fraud. For example, if you've been targeted by an identity thief or scammer, the first warning sign could be a late payment notice on your credit report for an account that you didn't open. When you regularly monitor your credit, you can spot problems like this early on, get errors removed from your credit report, and take the steps necessary to secure your accounts. Responding promptly to mistakes and fraud minimizes the amount of damage a scammer can do.
Another item to be aware of is your creditworthiness, which is convenient if you choose to extend a helping hand to a loved one, such as if you cosign a loan or rental application for a child or other relative. And qualifying for a low APR and favorable balance transfer terms minimizes the financial impact of borrowing to cover emergencies that come up at home, such as a water heater breaking and flooding your basement, or if a furnace dies in the middle of winter and has to be replaced. You may also prefer to use credit cards if you unexpectedly have to travel to be with family in a medical crisis, or if you're charged a high copay for a medical procedure for yourself or your spouse.
Some financial institutions, like KeyBank, offer clients free access to their FICO® Score. And as you keep tabs on your credit, you can ensure that you're eligible for the best credit card perks such as cash back on everyday purchases, travel rewards, and even concierge services.
Finally, monitoring and maintaining your credit history prepares you in the event that you can no longer rely on your spouse's credit, especially in case of a divorce or if your spouse passes away. You may also need access to credit in your own name if your spouse has a long-term hospital stay and is unable to sign for a loan. While no one enjoys planning for these scenarios, it's better to be financially prepared for all contingencies than to realize after the fact that you don't have sufficient access to credit.
4 Tips to Minimize Your Risk
Regular monitoring allows you to take control of your credit and use it to build financial well-being. As you use credit, keep the following tips in mind:
- Use credit selectively, and borrow with specific goals in mind. While it's wise to borrow purposefully at any stage of life, this is especially important in retirement when you may have a fixed income or depend on IRA withdrawals, Required Minimum Distributions (RMDs), or dividends to meet your budget.
- Check your credit report before applying for auto insurance or homeowner's insurance. In many states, 95 percent of auto insurance issuers and 85 percent of homeowners' insurance issuers take into account some factors from your credit history when setting premiums. An error on your report could drive up your insurance costs, so verifying that your credit report is accurate can save you money over time.
- Changes to the medical debt reporting process now require a waiting period of 180 days before unpaid medical bills affect your credit score, giving you more time to dispute any marks from medical creditors. This is a significant change that benefits consumers who regularly monitor their credit, providing a wider window of time to reach a resolution. If you've undergone medical procedures or treatments in the past few months, monitor your credit report so that you can spot any items related to hospital bills and address them before they impact your score.
- Is a limited credit history holding down your credit score? This is sometimes the case for people who have made most of their previous purchases in cash and have not needed to use credit; it can also occur when a person's spouse has done most of the borrowing in their name alone. Because retired people often need to demonstrate creditworthiness after a divorce or the death of a spouse, it's best to establish an individual credit history as soon as possible. Build credit by applying for a line of credit or credit card and making on-time payments each month. You can set up an automatic payment from your bank account to ensure you don't forget.
Stay on top of your credit by requesting a free report from each of the credit reporting bureaus (Experian, TransUnion, and Equifax) each year. Even if you share accounts, you and your spouse should each request separate reports because credit bureaus track each person individually and do not combine spouses' reports. Thus, potential problems like identity theft may show up on one spouse's report but not the other's, and they are likely to be overlooked if you examine only one partner's credit history. You're entitled to a report from each bureau once per year at no cost to you, so you can regularly check on your credit without being charged a fee if you request a report from a different bureau once every four months.