The use of credit changes over a lifetime. How will the changes affect you in retirement? Here are six credit questions you need to answer as you approach retirement.

by Gary Foreman

From your first gas credit card after high school graduation to a financial world filled with rewards cards and penalty rates, you have seen the use of credit change dramatically in your lifetime. And now you wonder how all these changes will affect you as you head into retirement.

So let’s take a look at six credit questions you will need to answer as you near retirement.

1. How does your credit score stack up?

According to Experian.com, consumers’ credit scores tend to increase as we age. Experian found that on average, Gen X’s average credit score is higher than that of the average millennial and baby boomers have higher scores than Gen Xers.

Since household income typically peaks for those in their 50s, it is possible to pay down debt, which results in a better credit score.

2. What’s on my credit report?

Credit scores include a lot of different inputs. So it’s not unusual for those 50+ to make financial decisions without recognizing their credit score effect. Sometimes the result is a surprising entry on their credit report.

Gerri Detweiler, former director of consumer education for Credit.com, points to a couple of common situations. “People 50+ often find themselves saddled with other people’s debts, especially their kid’s. This may include cosigning for cars, student loans, or even homes. The big danger is that if the primary borrower can’t pay, the cosigner ends up responsible for the debt. Even if the bills are paid on time, the debt will usually be included on their credit reports and affect their debt ratios and credit scores.”

3. Could my credit score get sick?

Just as a sudden illness is more likely to strike as you get older, the same holds true for your credit score. That’s because medical bills can seriously affect your finances as you age.

According to Ms. Detweiler, if a medical bill goes to collection, expect a big hit on your score. “One study found that medical bills accounted for about half of all collection accounts on credit reports.”

4. Can I have too much credit?

Many people approaching retirement find that they don’t need much of the credit that they have built up over the years and that is still available to them. Naturally they wonder if their credit score would improve if they cancelled some available credit.

Ms. Detweiler believes that’s not necessary. “Those big credit lines don’t hurt. If you get your credit reports and see open available credit lines totaling tens of thousands of dollars, you may be tempted to close some, thinking all that available credit makes you a greater credit risk. But that’s not the case with most scoring models, which are more concerned with the debt you are carrying than your available credit. So you’re usually best off just leaving them alone.”

5. Will being close to retirement hurt my credit score?

Actually, the opposite is true. Detweiler explains, “The fact that you have been using credit for many years helps your credit scores. Most scoring models take into account the average age of your accounts as well as the age of your oldest account. So be glad you have all that experience under your belt. It’s something you can’t fake.”

And a lower retirement income level does not affect your score. So while a drop in income might make paying bills more challenging, that alone won’t hurt your credit score, but it is a good warning about debt. Ideally you’ll have houses, cars, and credit cards paid off prior to retirement.

Related: The Importance of Managing Debt as You Near Retirement

6. I don’t need to borrow money anymore. Why should I care what my score is?

Tempting as this is, you probably don’t want to blow off your credit score. Credit scores are used for much more than just issuing credit.

For instance, you may be someone who chooses to work for a few more years. Don’t be surprised if a potential employer checks your score. If you have an auto or homeowners insurance policy, there’s better than a 50/50 chance that the insurer will consider your credit score in determining rates and discounts. (See 7 Monthly Bills Affected by Your Credit Score.)

As you head into retirement, you may be able to leave the daily grind behind. But you’ll still need to monitor and manage your credit to avoid unpleasant outcomes.

Related Articles

• How Credit Card Needs Change After Age 50
• Does My Credit Report Matter As Much As I Age?
• Managing and Using Credit Cards in Retirement
• Your Emergency Fund In Retirement: A Comprehensive Guide
• Could Debts Ruin Your Retirement?

Reviewed August 2024

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletter. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.