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Your credit score still matters in retirement. It can affect your ability to borrow money, enjoy lower insurance premiums, and even move to assisted living.
Here are the simplest ways to maintain your credit score throughout your retirement.
Keep your file fresh
Your employment has no bearing on your credit score. If you’re paying off your debts as agreed, the scoring models don’t consider whether you’re bringing in six figures or relying on Social Security.
However, if you have no credit activity for six months, your FICO score — the most widely used type of credit score — can go dormant. FICO estimates that 3.9 million consumers are “credit retired,” a form of being unscorable that can happen at any age.
If you have no credit activity for years, you’ll eventually have no credit report. Closed accounts drop off your record after a maximum of 10 years.
Put one credit card on autopilot
You’ll want to do at least one transaction every six months to keep your score active. But who wants to keep track of that? Here’s how to use automated payments so that you don’t have to.
- Pick a card. Choose a credit card with no annual fee that you don’t carry a balance on. It could be a new credit card or one you already have.
- Select an expense. Now choose a recurring subscription you actually use, like your phone service or cloud photo storage.
- Charge it automatically. Log in to your account with the subscription provider and set up that expense to automatically get billed to your credit card.
- Pay it automatically. Then log in to your credit card account and set up automatic payments from your bank checking account so that your recurring charge always gets paid in full by the due date.
Maintaining or improving your record of on-time payments is good for your score. Plus, using your card means the issuer won’t close it for inactivity.
Even if you don’t use credit for most purchases, a card can be indispensable when staying in a hotel, renting a car, traveling abroad, or facing an emergency.
Don’t miss payments
If you already have debt, the good news is that you don’t need to go out of your way to keep your score fresh. Your lenders will report your payment activity each month. Since payment history accounts for 35 percent of your FICO score, an autopay strategy can help here too.
Being 30 days late on a single payment could drop your score by 20 to 60 points — and the higher your score, the bigger the hit. Fall 90 days behind and your score could drop by 110 to 130 points.
“But I always pay my bills on time,” you say. “And I don’t want to put them on autopilot because then I might not notice an incorrect or fraudulent charge on my credit card bill.”
Fair enough. As for the first objection, however, what would happen if you became mentally or physically incapacitated? It can happen at any age (that’s why all adults need a basic estate plan). But we’re more likely to find ourselves in intensive care or a nursing home bed with each passing year.
Plain old forgetfulness is another issue. It’s a normal part of aging that can cause us to miss monthly payments. Medical conditions, mental health conditions, medication side effects, stress, and grief can make things worse. (Related: Planning for your old age … while still of sound mind)
To avoid paying for fraudulent purchases, sign up to get text or email notifications for all new charges. If something seems fishy, you’ll be able to catch it right away.
Simplify your finances
Simplifying your finances can also help you protect your credit score in retirement. The fewer accounts you have to keep track of, the easier it is to stay on top of due dates and pick up on fraudulent charges. Winnowing your accounts could also make life easier for loved ones who may one day manage your finances or settle your estate.
It’s okay to close cards you don’t use — even older ones. They’ll stay on your report and continue to influence your score for seven to 10 years. The closure won’t hurt the “total length of credit history” part of your score until that time is up.
Yet, older accounts can be worth keeping open to help with the “age of oldest account” aspect of your score. They can be good candidates for the autopay strategy described earlier.
So can cards with high limits that you never come close to hitting. They’ll lower your credit utilization — how much you owe compared with how much available credit you have — which is also good for your score.
Closing newer accounts with lower limits should have little effect on your score. Consider shutting those down first.
Keep your balances low and your available credit high
Credit utilization accounts for 30 percent of your score, according to FICO. You’re considered a lower risk if you have plenty of funds available to borrow but aren’t using them.
Even if you pay off your cards in full each month, using too much of your available credit could hurt your score. That’s because credit utilization is calculated from your monthly statement balance.
If your score isn’t as high as you’d like, try paying off your balance a few days before your statement is issued.
Freeze your credit file
Beyond keeping your credit score high, you may also need to protect it from crime.
A credit freeze, also called a security freeze, can stop an identity thief from using your good name to rack up debt and make your life an administrative hell. A freeze blocks most lenders and creditors from accessing your credit file, creating a barrier to approval.
Our personal data is stored in so many systems that there is a chance that thieves may already have it. The only question is whether they’ll be able to use it.
Identity thieves aren’t always anonymous hackers on the dark web, either. They’re often people close to us — friends, family, and caretakers. Out of desperation or a misaligned moral compass, some people are willing to commit fraud and elder financial exploitation.
Freezing your credit used to be a costly headache, said Howard Dvorkin, CPA and chairman of Debt.com. Then, in 2018, Congress ordered the big three credit bureaus — Equifax, Experian, and TransUnion — to offer credit freezes free of charge. It became relatively simple to freeze and unfreeze your credit online.
Of course, it’s not simple if you aren’t computer savvy, Dvorkin noted. Also, credit freezes are far from impenetrable, according to online security expert Brian Krebs. But doing something free that may help prevent identity theft by making you a slightly more challenging target than the next person seems worthwhile.
Also, if you are interested in identity monitoring and other credit safeguards, there are free services available. For example, you can review your file at annualcreditreport.com, and your credit card benefits may include credit monitoring and ID theft protection services.
Review your credit reports and dispute errors
“Credit freezes massively reduce the risk of identity theft, but nothing is totally effective,” Dvorkin said. “If you freeze your credit, you still need to review your credit card statements and check your credit reports annually.”
Credit report errors are a major problem that can be frustrating to correct. The Consumer Financial Protection Bureau is well aware — it received more than 700,000 complaints about them from August 30, 2020, through August 29, 2023. It offers some tools that can help, though.
The CFPB’s free credit report review checklist walks you through reviewing your reports. The bureau also offers a template to help you file credit report disputes and can help you protect your rights if you’re getting pushback or being ignored.
The most important errors to correct are ones that can drag down your score, such as accounts that aren’t yours and erroneous late payments. Despite the relative uniqueness of Social Security numbers, people with similar names can end up with strangers’ information on their reports.
How alternative credit may help
FICO’s research shows that it takes at least six months of credit history, as well as activity within the last six months, for its scores to be reliable, explains Joanne Gaskin, FICO’s vice president of scores, in a company blog post.
Alternative credit data from utility companies, bank accounts, landlords, and other entities that don’t report to the credit bureaus could help you become scorable if your file becomes stale. For example, if your checking account shows a history of positive cash flow and no overdrafts, you may be considered a strong applicant even without a credit score.
“Because alternative credit data and scores look at different types of financial behaviors than traditional credit scores to evaluate consumers’ ability to repay credit lines, often these tools can score 70 to 80 percent of U.S. individuals who have no, thin, or stale files,” said Kevin King, vice president of credit risk and marketing strategy for LexisNexis Risk Solutions.
“Alternative credit data is particularly effective at evaluating stale file applicants, as these individuals often have a long and established history of managing credit and engaging in the economy,” King explained. “This means there’s a wealth of data to rely on outside of traditional credit files to produce a reliable evaluation, even if the consumer has had no active credit accounts for some time.”
Many fintech lenders use alternative credit data and proprietary algorithms to approve borrowers that traditional lenders reject. But even traditional mortgage lenders can approve applications for borrowers with no credit score if they’re willing to spend more time underwriting your loan.
Credit supremacy’s benefits and burdens
Many of us have loans — and credit scoring — to thank for the degrees we’ve earned, careers we’ve enjoyed, businesses we’ve started, and homes we’ve lived in. Yet, credit scores have become a factor in so many life-impacting decisions that even in retirement, you may prefer to monitor and maintain your credit indefinitely.
Discover more from MassMutual…
How to prevent debt from ruining retirement
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Be on guard against elder fraud: 3 common senior scams
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