How Does Retirement Affect Your Credit Score?

Being retired does not have any direct effect on your credit score. Your credit report is prepared based on how well your finances are managed. So, if you are paying on time, and maintaining a good credit utilization ratio during retirement, this is not going to impact your credit score.

Credit bureaus use your credit report to calculate your credit score. If you have reviewed your credit report, you already know that it does not contain any information related to your income level and employment status. Similarly, you cannot find information related to your marital status, age, religion, race or ethnicity on the report. So, your credit report does not show your retirement.

Your credit report tracks your personal borrowing and repayment history. It contains information related to credit card accounts and loans. The report also records bankruptcies, repossessions and foreclosures, and other major negative financial events. If you find that any piece of information on the report is inaccurate, you can hire a company offering fast credit repair services and get it removed.

Retirement And Borrowing Power

Retirement is not going to change your credit score, but it will affect your ability to borrow and get credit cards. It is because you are out of the workforce. Your income is most likely to drop as you are getting retirement savings and Social Security benefits at the place of paychecks.

While considering a loan application, a lender wants to make sure that the borrower has a steady income. Your credit score is not the only consideration playing a part in the approval. The lender also considers your debt-to-income ratio.

In this phase of life, mortgages are most likely to be paid off. Your household spendings are decreased. So, you might think that your DTI is also decreased. However, if you have debts to pay and your income is dropped, expect your DTI ratio to increase. Make sure that your DTI is below 43%.

Credit Score Matters

Not all retirees cut back on borrowing after retirement. Many of them apply for new credit lines or take out mortgages on vacation homes or condos. So, don't banish credit score from your thoughts. Even when you are not applying for new credit cards and loans, your credit score affects your finances. Following are the reasons why you should hire a fast credit repair services provider:

Higher Interest Rates On Your Existing Debts

All credit card issuers monitor the credit scores of their credit card holders for account management. Your card issuer occasionally evaluates your creditworthiness. He holds the right to make changes in credit card terms and conditions if your credit score starts to decline. He can increase your interest rate and curtail your borrowing limit. He can even close your credit account.

Lower Rates On Your Insurance

Insurance companies generate specialized insurance score using your credit report. They use this score to determine the rates of insurance. Decreased credit score leads to increased insurance premiums.

Security Deposits

You are working on a DIY project and need to rent equipment. Your credit score will be checked. You have to make a higher security deposit if you have a bad credit score.

Keeping Credit Score High During Retirement

Now, you know that it is important to maintain a high credit score even after retirement. You should be aware of the factors affecting your credit standings. Following are the important steps you can take to increase your credit score:

Pay Bills On Time

Never skip your bill payments. All of your late payments are reported to the credit bureaus. You can also schedule automatic payments to keep your credit score from dropping.

Pay Credit Card Balances In Full

Pay in full and you will not have to pay any interest charges. Avoid exceeding 30% of your borrowing limit as this can lower your credit score.

Avoid Closing Old Credit Card Accounts

Even when you are not using them regularly, don't close your old credit card accounts (if you are not paying anything for them).

Stay Active

Credit card accounts you are using regularly help in increasing your credit score. So, make small monthly payments.

Stay Alert

Review your credit report on a regular basis and look for errors. Someone can steal your identity and hijack your credit cards. Someone can even open a new credit card in your name.