Do You Need Credit Even After You Retire?
After decades of work, you may be ready to put your credit profile to rest. Who needs credit after they retire?
You do—you need credit even after you retire. There are multiple reasons, and we will discuss them right here.
Why Credit is Important, Ever
For starters, let us go back a couple of years (not much more than that, right?) to your teenage years. Ideally, you were just starting to build credit upon your 18th birthday.
Back then, you built your credit in anticipation of applying for credit cards, buying a home, leasing a car, taking out loans, etc. Without a good credit score and excellent credit history, you would not be able to achieve all of that.
Hopefully, you kept at it to build and maintain a great credit score.
If you are approaching retirement or have already reached it, you may think you can let go of your credit. You made it up until now and no longer need to maintain good credit.
That thought is false. Here is why you do need good credit even after you retire.
1. To Help your Offspring Buy a Home
Parents want nothing more than to be able to provide for their children. A healthy dynamic between parent and child is strong in affection, emotional support, and trust.
Financial support is also very prevalent, especially when the kids are young.
As children grow older and become independent individuals, financial support may lessen or cease.
Not all parents have the financial means to support their children forever, but that does not mean they don’t continue caring and worrying for them.
Can you relate to wanting to be there for your adult child but feeling strapped by your limited budget?
If your children want to buy a house, you can do something huge for them without opening your wallet. That is to cosign their loan. And to cosign their loan, you must have good credit.
Cosign a Loan
Many potential home buyers cannot close on their loans because their income falls short. In that case, they can bring in a co-signer to sign on their loan and supplement their income to get approved for a mortgage.
Co-signing a loan is a great act of kindness, especially when you do it for a loved one.
All the co-signer needs to qualify is income plus a good credit profile.
So you got it right there. The first reason you may need credit after you retire is if you ever want to co-sign on your child’s loan.
Once we are on the topic of co-signing, we need to touch upon the risks of cosigning.
Technically, a co-signer should not have to lay out any money. The co-signer is there to assure the lender that in case the primary borrower fails to make payments on the loan, the cosigner will step forward and make payments. However, since you may be limited financially, you don’t want to get to the point of having to step in to make payments instead of the primary borrower.
Here is how to avoid that and other risks of cosigning.
How to Co-sign Responsibly
Affordability
The first risk is the primary borrower not making payments on their loan.
Before you co-sign, sit down with the primary borrower, who may be your own children, and check their finances.
Check if they have a plan for paying their mortgage. Do they seem able to afford the loan? Do they have extra finances in case an emergency crops up?
It may seem like you are letting them into your personal affairs, but once you co-sign, you are legally just as responsible for the loan. Don’t go into this blindly to keep peace in the family. Instead, be cautious so you don’t find yourself in hot water with your children later when they fail to pay their mortgage.
The banks all check finances before they approve a loan. You are entitled to do so as well.
Ask for Loan Statements
Take it one step further. Usually, only the primary borrower receives their mortgage statements.
When you co-sign a loan, request from the bank to receive monthly statements. This will allow you to hover like a hawk over the account to make sure they are making timely payments.
Request Escrow
Ask the primary borrower to give you three months’ mortgage payments. If they ever miss a payment, use this money as escrow to make it yourself. If you have escrow, you don’t have to shell out your money.
Get a Refinance Commitment
Lastly, you need to cosign their loan because the primary borrower is not eligible for a mortgage.
However, they may become eligible over time due to increased income, more intelligent savings, etc.
Get a commitment from the primary borrower that as soon as they become eligible for their mortgage, they will refinance the loan and remove you from being a co-signer.
Yes, co-signing on your child’s loan is nice, but it must not be forever.
As soon as they can get you off, they should.
2. To Downsize your Home
Enough talk about helping your child own their home. Now, let’s focus on the house you live in.
As the years pass and you slowly ship your kids out of your home and into their humble abode, you may feel very humble. Humbled by your huge living property occupied by only you and your spouse.
The desire to downsize homes stems from needs that are now obsolete.
Space? Previously occupied bedrooms are now empty. At least empty of human beings because your children may have upped and left, but assuming they are like many others, their STUFF is still there. The stuff they did not take along with them but would pass out if you dared throw any of it out.
In any case, you no longer need so many rooms. (In the worst case, remove most of their STUFF to clear up more space. Rest assured, they will never know).
Steps? Gone are the days when your legs swiftly carried you up those steps to the second floor of your home and had you prancing back down. New aches and pains may have you seeing red at the sight of those steps.
You can easily make do without the upstairs floor.
Location? When your children were going to school, clubs, friends’ houses, and whatnot, you wanted to be situated in the location with the shortest carpool route.
Now that your children are busy carpooling their own brood, you might be more than ready to move out of the bustling area to quieter pastures.
We’ve established enough chances that you may move out of your current home and into a smaller dwelling.
Buying a house
Once you move out, you may decide to buy a new house. If you sold your prior home, you can buy a smaller apartment to retire in.
That requires taking out a mortgage. The bank must approve you for a mortgage, and good credit is crucial. They will not approve you without a decent credit score.
Furthermore, strong credit can help you obtain a lower interest rate on your mortgage. The higher your credit score, the better your interest rate will be. Fico estimates that you can get a 1.5% lower interest rate with an average 800 score than a 680 score.
In that case, good credit is very important even after you retire. Without it, no lender will approve you for a mortgage. And even if they do, your interest rates will likely be higher than they could have been.
Renting
Have you lived in a rental all these years? Do you want to give up your current home for a smaller rental? If you are interested in a new rental contract, you must have good credit, just like you would with a mortgage.
Potential landlords often request to see your credit report. It is their way of being cautious before accepting you as a new tenant. Landlords review your credit report for bankruptcies, charged-off accounts, and any red flags that may indicate financial issues. The landlord can easily deny your tenancy if any of those marks are present. And if they don’t deny you and are ready to accept you as a tenant, they may still ask you for a larger deposit or demand a cosigner to protect themselves from possible shortcomings in your rent payments.
A delinquent credit report is not a good indicator of a responsible tenant.
But if you can show a beautiful credit report clean of delinquencies, you come across as a responsible person. A landlord would be happy to take you in as a tenant. After all, you present yourself as the person who makes timely payments.
That brings us to this conclusion: If you do not want to stay stuck forever in the home you purchased or rented way back then, make sure you have good credit. When it comes time to downsize, you will have all your options open.
3. To Apply for Home Utilities
Let us move on to another explanation for credit after retirement.
Whether you buy a new house, move into a new apartment rental, or stay where you are, it makes no difference. Electricity, plumbing, water, and gas will always remain necessities.
Your blood pressure may rise when the bills from the utility companies arrive in the mail, but you can’t live without ‘em.
So, where do utilities come into the picture now?
As we mentioned earlier, if you downsize and move into another house, you will need to set up utilities for your new place.
How else would you have water to boil for your coffee the morning after the move? And to be able to use your kettle or coffee machine, you need electricity. And electricity to keep your appliances humming, gas to keep things going, internet if you want, and a Tylenol to stop your head from spinning.
Once you get your bearings, you must apply for home utilities with each home utility provider. The clincher is that the utility providers will check your credit report before they agree to take you on as a customer.
The idea is that the provider is lending you electricity one month at a time. They want to assure that you are a trustworthy borrower and will pay what you owe them when the last day of the month hits. The provider may get that assurance if they find you have a good credit history with track record payments. Why else would they want to lend you electricity for a month?
They wouldn’t. So, to have your name honored at the top of a utility bill, you will need to have good credit!
4. To Apply for New Credit Cards
Those who know, know.
There is a thrill and exhilaration when you know how to manage your credit cards perfectly.
Firstly, you know precisely which of your cards to use for every swipe you make. Secondly, you know how and where to transfer your rewards for maximum cashback. You also have an exact timeline of when your annual fees are due, when a benefit needs re-enrollment, and when a credit is about to expire.
Keeping track of credit cards is a game of strategy for the savvy.
Now, here is what I am getting to. Perhaps you are playing the game of managing your credit cards perfectly. If that is the case, I can easily assume you will still apply for more credit cards after retirement. After all, one who knows how to keep track of their credit cards can handle many, many cards. And strategizing credit cards is just too satisfying to give up so quickly.
This brings us to a couple of situations in which you might just decide to apply for a new credit card.
Cash in on Rewards at the Drugstore
As you advance to older age, you might find yourself more often than not at the drugstore. To fill a prescription, to find another super vitamin, or to refill your stash of reading glasses. There are plenty of credit cards that earn great rewards on drugstore purchases. It is worth your while to get one to maximize the rewards on the money you spend at drugstores.
Get a New Welcome Offer
Banks never cease to offer exciting welcome offers on credit cards, which often entice consumers to get the card. You might apply for the card if you come across a welcome offer you desire.
Fly with Airline Points
Perhaps now more than ever, you can find the time to travel. You’re home, have no job to run to, and life is calm.
Thankfully, there is a wide range of airline credit cards. Whether you ever flew or not, there may be an airline card you could never use that would complement your trip amazingly now.
Hence, a new credit card.
Consequently, everyone knows that a bank must consider your application if you have good credit. Some credit cards even require excellent credit.
Be wise and keep your credit in good standing so you can apply for a credit card whenever you like.
5. To get an Auto Lease
Let’s hit the road. Another reason you may need credit after retirement is for an auto lease.
Even if you already own a car, you may decide to get a new lease, either for a new car or in addition to your current one. Or, you may want to upgrade your current vehicle.
Whatever the reason, when you apply for a new auto lease, the bank will pull your credit. You will only get approved if they find your credit in good standing.
Moreover, if you want to get the best lease rate, you need a score of approximately 720.
6. To get Auto Insurance
Once we are on cars, let us mention auto insurance.
If you drive a four-wheeled vehicle, you want auto insurance. Though I never wish it upon you, if you, G-d forbid, are ever involved in a car accident, auto insurance will help cover the mess.
Auto insurance companies will check your credit before they approve you for insurance. The company will trust someone who comes across as responsible through their credit report as someone who will drive a car responsibly.
It is a bit of a far-fetched connection, but if the insurance companies are looking for clean credit, you should present clean credit.
How to Maintain Your Credit
Finally, we set the facts straight. Credit is essential even after you retire.
But how do you maintain your credit after you retire? Do you close most of your credit cards to avoid messing up any of them? First of all, no, that is not the way to go.
Here are some tips to guide you in maintaining your credit.
Keep Two Cards Open
There is no reason to close all your credit cards. That would simply squash your credit history and plunge your credit down under.
On the contrary, you should keep at least two credit cards open. This will safeguard your credit history that you have built up with those cards.
However, this brings us to our second tip: to make sure you use those cards responsibly.
Don’t Max Out your Cards
When using your credit cards, be very careful not to max out your cards so as not to elevate credit utilization.
Credit utilization is the percent of each card’s credit limit used. High credit utilization is bad for your credit. Therefore, keep your card balances low rather than high.
Make On-Time Payments
Of course, when it comes time to pay your bill, be extra vigilant to make on-time payments. Late payments are a no-no for good credit.
Pay your credit card bill after the statement prints but before the due date.
Conclusion
You may have started reading this post, and you were sure it would say that you are right and do not need credit after you retire. After all, why did you work all of your life? Was it not to sit and relax after retirement? Things may change, but this is the best advice concerning your good credit. Always check out the newest information, especially relating to credit and taxes.
Yes, but no. You can retire, take it easy, and let go. But if you ever want to get a new car, house, or credit card, you will need good credit to get approved.
Hopefully, you have kept up your credit for decades now. If so, keeping your credit in good shape should not be too difficult. It is well worth the effort so that you are not stuck in place when you want to add another cherry to your life. Be it in the form of a lovely little house or a fancy, compact car.
Featured Image Credit: Photo by Anna Shvets; Pexels
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