A lot of nasty financial warnings went out during the Great Recession, including one that baby boomers wished they didn’t have to hear: Your credit score still matters.
Boomers are plowing through the retirement gates at the rate of 10,000 a day, but the gate opened at about the same time that the bottom fell out of America’s economy. And to no one’s surprise, boomers weren’t ready.
The generation that has been asked “Are you ever going to grow up?” every decade since the 1960s clearly has not, at least from a financial perspective. Boomers either already have or will have home loans, car loans, student loans, and credit card balances to deal with during a time they expected instead to be dealing with tee times, restaurant reservations, and whether to take a morning or evening walk on the beach.
You’re probably retiring with too much debt
In other words, 40 years after starting work, boomers are pretty much in the same position they were in coming out of college. They owe a lot of money to a lot of people, and the evidence backs that up.
- According to the AARP, more than 40 percent of people in the 65-to-74 age bracket have first, and sometimes second, mortgages on their homes. The average balance on those mortgages is $70,000.
- Roughly one-third of people aged 65 to 74 use credit cards to pay for basic living expenses (such as groceries and utilities) and have balances that average $8,248.
- More than 2.2 million seniors cosigned on student loans, triple the number from 2005. According to the Treasury Department, the number of Social Security checks garnished to cover overdue student loans has risen from six in 2000 to 115,000 in 2012.
Getting your finances and your credit score in order is still important in retirement. By doing so, you can finally sit back and enjoy being out of the workforce.
How can I impact my credit in retirement?
Everyone’s credit file is different, and what works for one person may not work for another. But if you want to positively impact your credit score in retirement, the answer is simple: Put together a financial plan to eliminate debt as quickly as possible.
Step one of that plan should be paying all your bills on time, especially credit cards. Nothing dings a credit score more consistently than failure to pay off your monthly credit card balances on time.
According to the Federal Reserve, the median credit card debt for retirees is $2,200. That should be a manageable number to reduce to zero, though it certainly will require some sacrifices. The solution may be visiting fewer restaurants, going on fewer shopping trips for new clothes, selling a portion of an annuity, or taking a part-time job. Paying down your debt is the first step to getting a handle on your credit and your finances.
Once you get your credit card balance under control, you’ll feel loads of relief and be able to deal with other areas of your budget, like saving and paying down other debts.
A solid credit score will help you live your dreams in retirement
In retirement, your income will likely be significantly less than what it was during your working years, so there could be a number of situations in which you will need some kind of loan. You may want to start a small business, for example, or need to borrow money for a medical emergency. When that happens, your credit score will definitely matter.
Lenders use your credit score to assess your risk as a borrower, with a high credit score making you look like less of a risk. A high credit score could allow you to refinance your current mortgage to obtain a lower interest rate—if you haven’t already—and it can mean lower rates when it’s time to buy a new car or pay for insurance on your car or home.
A high score could also help you consolidate student loans if those are part of the debt baggage you’re carrying into retirement.
You could even qualify for a lower interest rate on your credit card or qualify for credit cards that offer premium rewards programs for customers with great credit scores.
Above everything else, all retirees should remember that a high credit score is like good health: invaluable.
Bill Fay is a business writer for Debt.org, focused mainly on stories about financial matters affecting families and small businesses. He has 30 years of experience working in newspaper, radio, and television.
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