Rosalind Evans
Experiencing car issues and naturally assuming that a history of diligent credit management would earn a favourable car loan. However, when the salesman checks the credit, it reveals a decade of inactivity. Although often chose to transact with cash or a debit card, this approach unexpectedly lowered their credit score, thwarting the plans.
“Despite having a sizable down payment ready, it made no difference. I couldn’t get the car.”
TransUnion, a prominent credit bureau and a NerdWallet business ally suggests that 34% of American baby boomers are inadvertently jeopardizing their credit scores in retirement by minimizing or discontinuing their credit card use.
Heather Battison, Vice President at TransUnion, emphasizes that using credit cards for minor purchases retains credit activity. This proactive approach guarantees that good credit remains accessible when needed. This doesn’t imply accumulating debts; credit cards should be viewed as credit-maintenance tools, not fleeting loans.
Why Retirees Might Require Credit:
Predicting financial needs for your later years is challenging. Data from the Social Security Administration points out that an average 65-year-old will likely live into their mid-80s. Maintaining a robust credit profile is crucial, even if you don’t anticipate any future borrowings. Retirement might bring unforeseen expenses, like the situation Dobratz found herself in. Other instances where credit could be pivotal include:
– Securing Housing: Some senior living facilities conduct credit assessments, similar to a landlord vetting potential tenants.
– Co-signing Loans: A commendable credit history is essential if you’re helping a younger family member secure a loan or credit card.
– Home Refinancing: Post-retirement, refinancing could offer reduced interest rates and monthly commitments.
– Accessing Home Equity Lines: These can fund home modifications, ensuring accessibility. Delia Fernandez, a certified financial planner, suggests that early modifications, like widening doorways for mobility aids, are wise preparations for the future.
The Importance of Active Credit:
Battison shares a personal experience, “When my father shifted to an independent living facility, we realized that his home furniture wouldn’t fit. However, infrequent credit card usage created hurdles in furnishing his new space.”
Data from TransUnion indicates that between ages 51 and 70, 20% of individuals have subprime credit, defined as scores below 600.
The Perils of Avoiding Credit:
While your retirement strategy may seem foolproof, unforeseen circumstances can arise. A reliable credit history can be a safety net during such times.
Dobratz offers some advice, “You can’t predict every need. Retain that credit. If not, you risk facing steep interest rates on potential loans.”
In an ever-evolving financial landscape, maintaining a healthy credit profile isn’t merely a choice—it’s a necessity. Retirement, often seen as a period of rest and reduced financial activity, can bring about unexpected expenses. An active credit card, used responsibly, not only safeguards one’s financial flexibility but also ensures that retirees can tackle unforeseen financial needs without the burden of prohibitive interest rates. Just as we prepare our homes and health for our golden years, it’s equally vital to prepare and protect our credit. After all, financial peace of mind is a cornerstone of a serene retirement.
