Retirement represents a new stage in your life. It's a time of change and opportunity. To make the most of your opportunities, you must make sure that one aspect of your life does not change – your good credit score.
A recent survey by the credit bureau TransUnion found that over 30% of Baby Boomers are making mistakes that can affect their financial fitness during retirement. This finding implies that seniors may underestimate the value of credit after their careers are complete.
According to TransUnion data, retirees and near-retirees still maintain significant debt. The average Baby Boomer has just under $100,000 in debt, and understandably, is focused on relieving that debt burden. If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.
The survey also found that just over one-third of respondents are reducing their dependence on credit cards during retirement. Eliminating debt is a positive sign, and doing so is necessary to improve a credit score – but if seniors are eliminating credit usage at the same time, they may be neutralizing their credit score gains.
Cancelling infrequently used credit cards may seem like a good strategy, but your credit score may be adversely affected. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: "When you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result because one of the main impacts on your credit score is the length of credit history." A shorter credit history translates to higher risk in the eyes of lenders.
Sean McQuay, Credit and Banking Expert at NerdWallet, agrees – but includes another reason to keep older cards, noting that closing a card account results in "decreasing your overall credit line, which basically signals that a bank trusts you less."
In addition to decreasing your overall credit line, closing an infrequently used account raises your credit utilization – your total credit in use compared to your cumulative credit line. High credit utilization suggests a greater chance of falling behind on payments and/or defaulting on debts.
To avoid these pitfalls, make periodic small purchases on all your open credit cards to keep them active and pay the balances in full at the end of each billing period. By keeping credit spending low, you can still address debts while getting the full benefits of your credit account.
It's okay to concentrate most of your credit spending in one account to maximize rewards. Just use alternate accounts often enough to keep them from being closed for lack of activity.
Periodic checking of your credit report can also prevent credit score damage. Whether they occur by mistake or as a result of fraud or identity theft, adverse additions to your credit report can drop your score significantly. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Without a regular check on your credit report, a successful scammer can drain your resources through fake accounts and charges before you realize there's anything wrong. Protect your personal information in all online activities and financial transactions, and check your report periodically to make sure that your efforts are paying off. In the words of April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit: "The best ways to avoid being a victim of identity theft is to always be aware of what you are doing."
Keeping a good credit score in retirement requires the proper mindset, and that mindset is not prevalent among Baby Boomers. The TransUnion survey found that only 16% of survey respondents considered maintaining good credit as a top priority – but you don't have to follow the crowd.
Make good credit a priority, and you can enjoy benefits such as reduced insurance rates, great rewards deals on credit cards, and access to loans with reasonable interest rates just in case you need one. The other 84% of your peers will marvel at how you do it.