|Credit Score Monitoring Crucial to Pre-Retirement Checkup
Most people know the basic steps in preparing for retirement: Participate in
employer-sponsored savings plans and fund tax-benefited savings vehicles; and as
the magical age approaches, turn investment strategies into income-generating
Yet, too many people on the brink of retirement don't heed an important part of
their financial biography: the credit score. In 2005,
Experian found that
people aged 50-59 had the highest level of non-mortgage debt of any age group,
with more than $21,000 on average. Those between the ages of 70-74 had the
highest credit score, according to that survey. But another survey found that
consumer debt for people over 75 shot up by 160 percent from 1992 to 2004. This
means our elders are paying off an average $20,000 of debt on a fixed income.
Consider Your Credit Scores
Some of these senior consumers are paying extremely high rates for
medical or other expenses partially due to not safeguarding their credit scores.
Credit scores will not disappear with the first withdrawal from a retirement
fund, because even in retirement, there can still be the need for credit. Consider
the senior’s need for credit when applying for a new home loan if downsizing;
obtaining a reverse mortgage; and qualifying for the best car finance rates.
Credit scores incorporate credit history; the amount of credit available and
used; number of late and on-time payments; and whether any payments due are in
default. Creditors also consider other factors in their credit decisions,
including debt and payment history relative to income — a factor sure to change
at retirement. Some creditors also review job history, which ends at retirement.
Credit scores range from 300 to 850. Higher numbers indicate greater likelihood
of repaying debt. A score below 680 usually results in a higher interest rate or
|Safeguarding Credit in Retirement |
To maintain a good post-retirement credit score, future retirees should
understand the basic credit score terms. Going to the
bills.com site you will see a quick glossary. Consider the following
recommended steps prior to retirement:
- Pay debt before retirement. As much as possible, credit card
debt should be eliminated by funneling money toward paying debt as
opposed to being used to shop, dine out or travel.
- Live on planned retirement income now. Future retirees should
give retirement a "dry run" by living on what they anticipate drawing
from retirement accounts. A CPA financial planner can help determine
specific income required.
- Line up insurance. Review insurance needs, including
homeowner's, auto, long-term care, umbrella policies and life insurance;
the latter may not even be needed in retirement. Any needed changes
should be made while employed. Insurers give their best rates to people
with good credit scores; this is easily accomplished while working.
- Settle into home and financing. If a move to a smaller home
or a condominium is in the works, the right time may be pre-retirement.
Mortgage or home equity line of credit terms will likely be better while
you are still drawing a paycheck. The tax deductions associated with a
move also may be more beneficial while employed. If
possible, consider paying off the mortgage while still working.
- Keep the cards. Those planning to streamline finances should
think twice about closing old accounts. Credit scores are partly
determined by comparing debt to credit available. Closing unused
accounts while maintaining some debt will create a higher debt-to-credit
ratio, which looks like a greater credit risk and lowers the credit
score. Use credit cards sparingly and pay them off monthly to maintain a
current credit history.
- Avoid payday loans. In a financial emergency, ask an employer
for an advance; call a creditor to ask for a delayed payment; or borrow
money from a relative. Payday loans have rates up to nearly 200 percent
a year, a terrible path into a debt snowball that can destroy financial
- Check credit reports now and frequently later. Don't end
credit vigilance when you retire. Everyone should check credit reports
at least once a year; more often for those who plan extensive travel,
which exposes seniors to greater risk for fraud and identity theft.
Retirement should be a relaxing time. Anyone can make the most of it by securing
every aspect of finances first, starting with the credit score.
About the Author
Brad G. Stroh is the co-founder and co-CEO of
Bills.com, a free one-stop
personal finance portal, located in San Mateo, CA. He also is co-founder and
co-CEO of Freedom Financial Network, which provides consumer debt resolution
services. Brad can be reached at email@example.com.