Whether you're just a year or so from retirement or have a decade or more to go, you may wonder if living on a reduced retirement income will affect your credit score. The short answer is probably not, as long as you continue to use credit in the same way that you've used it before.
Your credit score—the FICO score is the one used most often in the U.S.—is based on several factors that include:
That’s good news for retirees who have been careful to pay their bills on time each month and who may have a credit history extending back 40 years or more. Those factors account for 50 percent of the credit score. Although you may be less likely to have a mix of credit—you may have paid off your mortgage and probably aren’t buying a houseful of new furniture on credit or taking out a new car loan—that doesn’t impact your score as much as it might when you were younger. Companies that extend credit know that people who have good, long-term financial habits are likely to keep those habits when they retire.
The fact that you probably have less money to spend in retirement than you did when you had a paycheck doesn’t really come into play. As long as you maintain your good payment habits, you should be fine.
Even if you don’t intend to charge a lot of everyday purchases on credit cards once you’re retired, you never know when there will be an emergency and you don’t have the cash to cover it. If you have to charge auto repairs or a new heating system and pay it off over several months, you’ll save money if you qualify for a lower interest rate on your credit card. People with better credit scores get those better interest rates.
In addition, many retirees nowadays are picking up part time work to supplement their income. But there’s a lot of competition for jobs nowadays, so many companies are looking at people’s credit reports as one way to do an initial screening. A good credit report is likely to move you up on the list of job candidates.
Maintaining or raising your credit score in retirement requires you to use the same strategies that you would at any other time in life: