Don’t Retire Your Credit Score Too
While the act of retiring won’t directly impact your credit score, the accompanying changes to your financial habits can. Cutting back on your credit accounts and reducing your income could substantially lower your borrowing power.
Even if taking on new debt is not a part of your retirement plan, unplanned expenses are not uncommon during this stage of life. Don’t take the chance that your credit score won’t be ready when you need it. Instead, be sure it’s keeping you positioned for the lowest interest rates and maximizing your financial opportunities if the unexpected happens.
Don’t Quit on Credit Cards
Retirement may seem like the right time to simplify your financial life and limit your reliance on credit cards, but don’t be too quick to forgo them entirely. Even if you don’t expect to carry a balance on a credit card, it could still benefit you.
Your credit score is a reflection of your credit history. Closing a credit card account that you’ve had for a while can hurt your creditworthiness by reducing the age of your open credit. If you want to declutter your wallet, consider closing your most recent cards rather than your oldest ones.
Keep your DTI Low
Another factor that plays an essential role in determining your borrowing power is your debt-to-income ratio or DTI. Retirement can often mean a reduction in your income. Without a similar reduction in your debt, you can expect an increase in your DTI and a hit to your credit score.
Similarly, a decision to take on new debt – such as financing a vehicle or home improvement project – may severely limit your ability to borrow money in an emergency and reduce your flexibility to change your retirement priorities. If the possibility of a Home Equity Conversion Mortgage (HECM) or Home Equity Line of Credit (HELOC) is on your radar for the later stages of retirement, keep an eye toward minimizing your DTI in the meantime.
Watch out for Fraud
Remember, entering retirement can also make you a more likely target of financial scams and identity theft. Limit your discussions of financial matters to interactions with trusted loved ones and verified representatives from the institutions you do business with. Any unsolicited requests for information deserve scrutiny.
As an added precaution, review your credit report regularly to identify any inaccurate or fraudulent activity. Accounts you don’t recognize, balances that you weren’t aware of, and missed payments can all be spotted early and addressed if you keep a close eye on the three major credit bureaus reports.
Keep your retirement on track with the lending experts at Open Mortgage. Helpful resources, personalized options, and a secure online application can simplify your search for the mortgage resources that fit your plans. Explore our website for more information.