Hopefully you have put — or will someday put — a lot of thought and financial planning into the timing of your retirement. But have you thought about how you will spend money as a retiree?
For example, about one-third of baby boomers — people between the ages of 51 and 70 — are reducing their use of credit cards, NerdWallet reports, citing data from credit reporting agency TransUnion. But it turns out those baby boomers are risking their credit scores.
Why retirees need good credit
The adage of “use it or lose it” applies to credit. As NerdWallet explains:
“Unused [credit card] accounts risk being closed by the issuer. This lowers your total available credit, which can lower your credit scores. And closed accounts eventually drop off your credit report, which can cause further damage by reducing the average age of your accounts.”
So if you retire credit cards upon your retirement, it could limit financial options later on.
For example, maintaining a solid credit score in retirement can benefit you financially if you end up wanting or needing to borrow money, such as to:
- Buy a car or refinance a car loan.
- Buy a house or refinance a mortgage.
- Open a home equity line of credit (HELOC).
- Open a new credit card.
- Co-sign a loan for a family member.
In all these situations, your credit will be checked. Even if you rent an apartment or move into an independent living facility, your credit is likely to be checked by the landlord or admissions staff, respectively, NerdWallet says.
How to maintain good credit in retirement
Just because there are many reasons to maintain good credit in retirement doesn’t mean you should rack up debt in retirement. But putting even small purchases on a credit card can benefit your credit, provided you pay the bill off in full each month.
If you do so, you don’t pay interest. That way, it’s generally smart to take advantage of credit’s benefits — which you’ll reap even when making small purchases.
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