Your credit in retirement: Do credit scores matter after you retire?

You've worked hard, saved up and now you're ready to kick back. After all those years of financial planning, you might assume your credit score is no longer a priority. But hold on: If you’re looking to rent, take out a loan or even buy insurance for your car, your credit score can matter a lot.

With that in mind, let’s look at how retirement can affect your credit score and how to keep it healthy in your golden years.

How retirement affects your credit

The good news is that being retired doesn’t directly impact your credit. Credit bureaus don’t track your employment status, and it doesn’t factor into your score. That said, the lifestyle changes that accompany retirement can indirectly affect your credit score in unexpected ways if you’re not careful.

For instance, many retirees find themselves having to adjust to a fixed income, relying on savings, pensions or Social Security benefits for the first time. This may create new challenges in paying for expenses, which could lead to a higher reliance on credit or the need to take out loans to pay for larger expenses. This is especially true if prices for everyday items continue to rise due to inflation, as most of us have witnessed in recent months.

Taking on more debt can result in a higher credit utilization ratio or debt-to-income (DTI) ratio, which in turn can push your credit score down. Combined with a potentially lower income, this may make it more difficult to secure new credit or affordable loans when you need them.

How are credit scores calculated?

Five main factors go into your credit score, with your history of on-time payments and overall credit use carrying the most weight.

Here’s how the widely used three-digit FICO Score breaks down its scoring:

• Payment history — 35% of your score. Reliable, on-time payments make up the most important part of your score, while missing, late or otherwise unpaid bills can detract from it.

• Credit use — 30% of your score. This is a snapshot of your level of debt against your available credit. Overextending or using too much of your existing credit can make you appear risky to creditors or lenders.

• Age of credit history — 15% of score. FICO considers the ages of your oldest account and newest account, as well as the overall average age of your credit history, to understand the types of credit and debt you’re able to manage.

• Types of accounts you hold — 10% of your score. This is your “credit mix,” or the range of accounts and loans you’re successfully managing, including credit cards and other revolving credit and installment loans like mortgages and student loans.

• New credit inquiries — 10% of your score. FICO reviews new credit accounts you’ve opened in the past 12 months. Too many queries or applications in a short time can signal to lenders that you’re a risky borrower.

???? The FICO Score system
With FICO Scores, a “good” credit score is anything between 670 and 739, and “very good” is a score between 740 and 799. If your score is above 800, congratulations: You’re part of the 22% of Americans who can claim “excellent” credit.

Why your credit score is important in retirement

Lenders assess your credit score and debt-to-income (DTI) ratio when considering loan applications. This means if you plan on getting a new car loan, applying for a home equity line of credit or renting an apartment, a good credit score is crucial to approval or securing a favorable rate.

Here’s where your credit score matters:

• New vehicle financing. If you're looking to purchase a new car, an RV or motorhome or a leisure boat, your credit score will significantly affect the interest rate you get. Generally the higher your credit score, the lower the rate on your loan.

• Home equity loans and HELOCs. With many retirees relying on home equity loans and HELOCs to make ends meet or reach financial goals, having the highest possible credit score makes it easier to borrow at low rates and keep repayments within a fixed retirement budget.

• Mortgages for second homes. Mortgages for second homes are typically higher than those for primary residences — up to 1.25% higher, depending on the lender. A strong credit score can help you get a lower rate, potentially saving you tens of thousands of dollars in the long run.

• Utility bills. Most utility companies look at your credit score to determine whether you need to put down a deposit. A good credit score means not having to shell out extra cash when you’re setting up services like water, electricity or internet or Wi-Fi.

• Renting. Most landlords and property management companies check your credit score as part of your application. A low score could result in higher security deposits — or even denial of your rental application altogether.

• Insurance. Insurers often use credit scores as part of their risk assessment process. In many states, a good to excellent credit score can influence lower insurance premiums on your home and car insurance.

• Nursing homes. Some nursing homes and continuing care retirement communities (CCRCs) check credit as part of the admission process. If you have a good score, it can help ease the application and approval process.

Dig deeper: How to find a trusted retirement advisor in your golden years

How to keep up your credit score in retirement

Keeping your credit in shape is good for your financial health and well-being. Here are 5 ways to keep your score on track.

1. Use your credit cards. Keeping a couple cards open, using them at least every six months and paying off what you owe each month can boost your score by maintaining a regular payment history. Use them too infrequently, and they’re excluded from your credit score.

2. Always pay on time. With on-time payments making up 35% of your credit score, paying your credit cards and other loans by their due dates is essential. To guarantee you don’t miss a payment, consider setting up autopay through your bank accounts.

3. Don't close old accounts. Long-standing credit cards are like old friends, contributing to 15% of your credit score by enhancing your credit history. Keeping them open and using them regularly can help you maintain a stronger credit profile.

4. Get on a budget. Budgeting can help free up more cash every month so you don’t have to rely on credit. Here are 5 popular budgeting strategies that have helped many tame unruly finances once and for all.

5. Think twice before cosigning. While it’s tempting to help out family members, cosigning on loans can be risky business for your credit, not to mention your relationships.

????Don’t forget to check your credit reports

You can order your credit report from each of the three reporting bureaus — Equifax, Experian and TransUnion — once a year through the federally authorized AnnualCreditReport.com. Regularly reviewing your credit reports can help you catch mistakes or errors that may be dragging down your score. At a minimum, confirm that your personal information is correct and that each account listed — whether open or closed — is accurate. Report any inaccuracies or incomplete information directly to the credit bureau..

Dig deeper: Best $0 and low-cost budgeting apps for organizing your finances the modern way

Common credit mistakes in retirement

Even financially savvy seniors can stumble sometimes. You’ll want to watch out for these common credit mistakes in retirement:

• Closing old credit accounts. It might sound counterintuitive, but closing old accounts can actually hurt your credit since the age of your accounts makes up 15% of your score. Generally the older your credit accounts, the higher your credit score.

• Applying for too much new credit. It can be tempting in retirement to open new cards for the points, miles and other rewards, but too many applications in a short timespan can ding your score.

• Ignoring your credit reports. Don’t put off reviewing your credit reports for errors or incomplete information that can surprise you when you’re applying for important financing down the road, like a personal loan or home equity loan.

• Overlooking automatic payments. Setting up autopay for your regular bills can help you avoid late payments, but be sure to monitor these transactions regularly. Mistakes can happen, and you want to ensure you’re not being overcharged or missing a payment.

• Falling for scams. Sadly, scammers are known for targeting seniors and retirees. Stay alert to “bait and switch” tactics from companies offering loans or credit at rock-bottom interest rates. The saying is true: If it sounds too good to be true, it probably is.

⚠️ Americans lost a staggering $10 billion to scams in 2023, according to the Federal Trade Commission. That’s 10% more than in 2022, and it’s the highest amount of losses ever recorded in a single year. Impostor scams were the most costly, totaling $2.7 billion in reported losses.

Not sure whether you’d recognize a phishing attempt or spoofed call? See our guides to the top financial scams targeting older and Americans and practical ways to keep your financial information and identity safe online.

How to get financial support in retirement

If you're feeling overwhelmed in retirement, you’re not alone. Eighty percent of older adult households say they’re currently or at risk of struggling financially, according to the National Council on Aging.

Here are some helpful resources to help you navigate the challenges of a reduced income in retirement:

• Benefits Checkup tool. The NCOA offers an online benefits tool that can connect you with programs to help pay for health care, medicine, food, utilities and more. Just enter your ZIP code to get started.

• Local senior assistance programs. Many communities support programs specifically designed to assist low-income seniors. To find these programs, contact your local Area Agency on Aging.

• Government resources. Federal and state programs offer financial assistance for seniors, such as Supplemental Security Income (SSI) or Low-Income Home Energy Assistance Program (LIHEAP), which can help with basic living costs.

• Volunteers of America. Among the nation’s largest human-service organizations, Volunteers of America provides a wide range of services for the elderly, such as meal programs, transportation, help with Medicare enrollment, nursing care and affordable housing.

• Online job boards. Sites like RetirementJobs and the AARP Job Board helps seniors and retirees find jobs that match their skill sets, as well as navigate the challenges of age bias. Explore second-act careers and side gigs in our guide to the best jobs for retirees and mature workers.

Related stories in this series

• How much can you earn while on Social Security?

• How to plan your retirement withdrawal strategy: The smart order for maximum returns

• Top financial scams targeting older Americans — and what you can do to keep your money safe

• Practical ways to keep your financial information and identity safe online

FAQ: Your retirement and saving money

Learn more about your credit score, debts and saving money in retirement.

Should I be debt-free when I retire?

Entering retirement without debt is ideal, but it’s not always necessary or even optimal. Your goal should be to retire with a manageable debt-to-income ratio that allows you to live comfortably within your means. But if you’d prefer to get out of the red, here are the top debts to prioritize paying off before you retire.

How do I calculate my debt-to-income ratio?

To calculate your DTI, first add up your monthly debt payments — housing expenses, credit card repayments, loan repayments and more. Then divide your total debt by your gross or pre-tax monthly income. Multiply the result by 100 to convert that number into a percentage. This figure is your DTI.

DTI ????[gross monthly income ➗total debt] ✖️100

Will I need to pay state taxes on my retirement benefits?

It depends on where you live. While most states don’t levy state income taxes on your Social Security benefits, the opposite is true for other retirement income, like your pensions or retirement distributions. Learn more in our state-by-state breakdown of taxes, deductions and credits.

Do most retirees carry debt?

Yes. Some 75% of adults over age of 50 currently carry some form of debt month over month, according to the AARP.

Can I get credit if I’m retired?

Yes, as long as you can show a reliable source of income — such as from Social Security, retirement pensions or savings — and have at least a fair credit score of 580 to 669, you can qualify for new, unsecured credit.

Sources

• Addressing the Nation's Retirement Crisis: The 80%, National Council on Aging (NCOA). Accessed October 16, 2024.

• Facts about fraud from the FTC – and what it means for your business, Federal Trade Commission. Accessed October 16, 2024.

• How Many Americans Have an 800 Credit Score or Greater?, Experian. Accessed October 16, 2024.

• On the Hook: Debt and the 50+, AARP. Accessed October 16, 2024.

About the writer

Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to help consumers and business owners make informed decisions and choose the right financial products for their needs.

Article edited by Kelly Suzan Waggoner