When you’re starting out, your credit score has a big impact on your financial health. It directly affects your ability to get a credit card or a loan, and it’s the first thing lenders check when you apply for a mortgage.
But what if you’re retired? You might not think your score matters much once you reach your golden years, but it does.
In fact, maintaining good credit after you’ve left the workforce is just as important as it was when you first started your career.
Here are five reasons your credit score still counts during retirement.
1. Your living arrangements could change
For many Americans, retirement often means a change in living arrangements. Now that you’re not tied down to a job, you may want to pack up for somewhere sunny — at least for part of the year.
Or instead of flying the snowbird route, you may choose to downsize and move into a retirement community, where you won’t have to worry about things like cooking and cleaning.
Even though you won’t need to apply for a mortgage, many retirement communities require a credit check and a security deposit before they accept a new resident.
2. You might want to buy a new car
If you’ve been waiting until retirement to finally splurge on that dream car you’ve always wanted, a solid credit score will help make it more affordable.
Unless you’re planning to pay for your new ride in cash upfront, you’re going to need to take out an auto loan.
When you apply for an auto loan your lender will check your credit score, and as with a mortgage, the better your score is, the lower your interest rate will be.
You’ll also need to get insurance for your new ride. In addition to your driving record, auto insurers will use your credit score to determine your monthly premium. Make sure to shop around for polices too using a comparison site because most Americans are overpaying for their car insurance by nearly $1,100.
3. You’ll qualify for more credit card perks
Planning to travel during your retirement? It may be in your best interest to get a credit card that offers travel perks, like air miles or insurance coverage.
Every time you apply for a new credit card, the issuer will check your credit report. This is known as a hard inquiry, and it may cause your score to temporarily drop by a few points.
To qualify for the cards with the best perks — and also minimize the effects of a hard inquiry — you should aim to have a credit score in the “very good” range, which typically refers to scores between 740 and 799.
4. You may decide to go back to work
Although most people see retirement as a chance to stop working, an idle life is not always for everyone.
You might find that you miss the sense of purpose and the feeling of community that work provides, and decide that you’d like to pick up a part-time job to keep yourself busy.
It’s also possible that you’ll want to work a few hours a week to help supplement your retirement savings and cover extra expenses, especially around the holidays.
Either way, your potential employer may perform a credit check before they decide to bring you on. Not every employer will look at your credit history, but it’s still wise to make sure your score is in good shape and your debt is under control before applying for a new job.
You could also consider freelancing your skills through an online marketplace if you want even more flexibility.
5. It helps protect you against the unexpected
You never know what the future might hold, and the older you get the more likely it is that you or your spouse could run into an unexpected health problem.
If a physical ailment requires you to make renovations to your home like adding ramps or a stairlift, you might need to take out a personal loan to help cover the cost.
Or if you or your spouse should require the services of a caregiver, you might want to take out a home equity line of credit, or HELOC, to help cover the costs if you don’t qualify for government aid.
Both personal loans and HELOCs will require a credit check, and if your score isn’t great you might not be eligible for the lowest interest rates — or qualify for a loan at all.
It’s also worth noting that private health insurance providers take some of your credit score criteria and factor them in when setting your premiums, so keeping your score high can potentially help you secure better rates. If you’re looking for private health coverage, be sure to compare several insurers online so you’re getting the best deal.
How to maintain a good score
The steps for maintaining decent credit after you retire are exactly the same as when you were still working.
Check your score regularly. Checking your score at least once a month is one of the easiest and most effective ways to make sure your credit is in good shape.
Oh, and paying to see your score is completely out of style. Online credit monitoring services now let you see your score for free whenever you want, and will email you any time your score changes.
Pay your bills on time. Many credit monitoring services will send you a reminder email every time you have a bill coming up, which can be extremely helpful if you have trouble keeping all your due dates straight.
If you’re going to be traveling a lot during your retirement, you might want to set up automatic payments on your recurring bills so that you don’t have to worry about them while you’re away.
If possible, pay your balances in full. Keeping your balances at zero will bring down your credit utilization ratio — the amount of credit you’re using divided by the amount of credit you have available — which is an important component of your credit score.
Ideally, you should try to keep your credit utilization ratio under 30%. So if you have a credit card bill with a $10,000 limit, the most debt you should keep on it at any given time is $3,000.
Keep old accounts open. You might be tempted to close some of your old credit card accounts if you no longer use them. However, the length of your credit history affects your credit score, and closing an old account could bring it down by a number of points.
If your heart is set on closing an old credit card, it’s a good idea to start with the newest one first. That way your older cards will remain active, and your credit age will stay intact.
Watch out for fraud. It’s a sad reality that scammers often target senior citizens for identity theft and credit fraud. So stay vigilant and check your credit report regularly for unusual or suspicious activity.
Some credit monitoring sites provide $50,000 in free identity theft insurance just for signing up. They’ll notify you immediately if something strange pops up on your credit report, so you can rectify the problem quickly before too much damage is done.