Do not let your credit score retire

It is often wise to pay off debts before retiring. How about getting rid of credit scores? It’s not so bad.

Credit scores are the three-digit number used by lenders to determine creditworthiness. People who cease using credit stop producing enough information to generate them. It can be more difficult and expensive to obtain loans if you don’t have scores. Lacking credit scores can also make your insurance, phone plan, and security deposit more expensive, even if you are sure that you will never borrow money again.

You don’t need to be indebted to get a good score. However, you do need to make use of credit.

According to Federal Reserve data, older people have more debts in retirement than they did a decade ago. This is despite the fact that mortgages, auto loans, and credit card balances are all common. In 2019, according to the Fed’s Survey of Consumer Finances, 70 percent of households with a head age of 65-74 were in debt. This compares to 51.4% of households headed by someone aged 65-74 in 1998. In 2019, 51.4% of households with a head 75 years and older had debt, compared to 24.6% back in 1998.

This still leaves an older population who may or may not have credit cards. Ethan Dornhelm is FICO’s Vice President for Scores and Predictive Analytics. According to him, the leading credit score firm has discovered that 7.4 millions people have “credit retired” status, meaning they are good credit history but do not hold active credit accounts. Dornhelm said that some of those who were “credit retired” were young people, perhaps switching to a cash only lifestyle. However, the majority were older. The average age was 73.

Credit scores can be “retired” fairly quickly. Dornhelm says that the FICO formula, which is used to make most lending decisions, requires at least one credit account in a person’s report be updated within six months.

According to Jeff Richardson senior vice president for marketing and communication at VantageScore Solutions, rival scoring company VantageScore updates accounts at least every 24 months.

According to Dornhelm, among the retired credit, the average time between updates was four years.

When you retire and have a fixed income, having a mortgage that’s paid off can help. It will be easier to pay off debts if you don’t need to use up your limited savings, or your income. Maintaining good credit is helpful in a variety of situations, including when you are faced with an emergency, need to finance a move at a later age, or face a financial crunch.

The unpredictable nature of life means that few people can say for sure they won’t need to borrow money again. Bruce McClary is the senior vice-president for communications at National Foundation for Credit Counseling.

You could still be paying for a non-existent credit score even if you haven’t borrowed in years.

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  Most states use credit data to determine premiums on auto and homeowners insurance.
  

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  It can be difficult to get a plan for a mobile phone if you have poor credit or none at all. Cell phone companies often offer the best offers only to people who are in good financial standing.
  

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  Utilities may require higher security deposits from people who do not have scores.
  

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  Some senior housing, including some assisted living communities, retirement communities with continuing care and nursing homes may require that applicants pass a credit test.
  

You don’t need to get into more debt in order to keep your credit score high. You can maintain good credit scores by using a few cards and paying the full balance each month. Each month card issuers send payments to Equifax, Experian, and TransUnion, the major credit bureaus. This keeps your account updated, so that your credit score can be generated.

Even if you have paid in full, try not to overcharge a credit card. Too much credit can damage your score. You could cause more harm if you only have a few active accounts.

It’s never too late to revive your scores if you have already retired them. You can revive your credit scores by being added as an authoriser to another person’s card. A secured credit card is another option. It requires you to pay a security deposit, usually the same amount as your credit limit. Credit-builder loan options are also available from some online lenders and credit unions. The amount that you borrow is placed into an account which you can access after making all your monthly payments.

Regardless of age, a good credit score is worth your effort.

Richardson: “If you have a high credit score and continue to use credit, then you are in control.”