According to TransUnion, one of the nation’s three major credit reporting companies, many seniors undervalue the importance of their credit score after retirement. Their recent survey of more than 1,000 Baby Boomers found that nearly half of them believe this vital number matters less after the age of 70. Though 70 percent agreed that a high credit score is important when refinancing a mortgage, only 62 percent realized it is also important when co-signing a loan. A mere 32 percent understood that their credit score might be considered when they apply for nursing home care or move into a long-term care facility.
If it has been awhile since you purchased a home or car, or bought homeowner’s or auto insurance, you probably haven’t thought much about your credit score in some time. Unfortunately, if you haven’t been making mortgage or auto loan payments, or using your credit cards regularly, it’s very possible your score has declined. In fact, avoiding the use of credit in retirement can actually cause your credit report to become so sparse that you lose your score entirely. This can make it virtually impossible to obtain credit again should you need it.
Because much of your credit score is based on active credit, you should talk to your financial advisor about adding credit utilization to your financial plan. Payment history accounts for 35 percent of a credit score, while the amount you owe counts for 30 percent. The length of your credit history will make up 15 percent of your score, new credit 10 percent, and the types of credit you have in use 10 percent.
If your score has fallen over the years, there are steps you can take to improve it. Your financial advisor may have additional suggestions, but you can start by:
- Asking for a limit increase. Credit cards with low balances and high credit limits can boost your credit score. Periodically ask your credit card issuers to increase your limits.
- Keeping your accounts open. It may be tempting to close accounts you haven’t used in years, but cancelling them will reduce the amount of credit you have available. This can decrease your credit score.
- Checking your credit report. Missed payments, late payments and collections all reduce your credit score. Review your report every year (you can get one for free at annualcreditreport.com) to look for errors. If you notice debt that isn’t yours, you may be a victim of identity theft. And if there are payments reported as late or missing that were actually on time, you can ask the reporting agency to make a correction.
If you’ve avoided credit for so long that you no longer have a credit score at all, you may want to get a secured credit card through your bank. A secured card allows you to deposit money into an account that becomes your line of credit. Using the card regularly and responsibly will help you rebuild your credit history over time.