We all want to keep our current lifestyle when we retire, but pension and social security may not be enough, especially if you have outstanding debt.
If you’re retired, or soon will be, use these five simple steps to avoid common credit mistakes that will cost you money.
1. Avoid new debt.
Whether it’s for a dream vacation or to supplement your fixed income, if you are charging more than you can afford, you will deplete your savings faster, damage your credit and incur high fees.
Set a budget and stick to it, even if that means changing your lifestyle. Save for splurges and pay your bills in full each month to avoid costly interest charges.
Your credit card payment history accounts for 35 percent of your FICO credit score and your debt makes up 30 percent, so work on reducing debt, not adding to it.
2. Use your credit cards wisely.
Once you quit working, you may no longer use your credit cards for everyday purchases like parking or lunch. If you don’t use your credit cards every few months, the issuer may cancel them.
To keep the credit line open, put a recurring charge on it like a gym membership or utility bill. You can even tie it to your checking account to have it paid automatically.
A consistent payment history is especially important for retirees who need to maintain good credit but may no longer have a mortgage or car loan.
“Having good credit is essential to
keeping more of your money.”
3. Don’t ditch your credit cards.
Too many retirees mistakenly close credit lines to simplify monthly bills.
It makes sense to consolidate bills if you are struggling with debt and you can transfer balances to a card with a lower interest rate, like the AARP Chase Card.
But if you have good credit, closing accounts could work against you if you are not careful.
- Don’t close your oldest accounts. Fifteen percent of your FICO credit score is based on the length of your credit history.
- Don’t let your utilization ratio get above 30 percent. That’s how much you owe, compared to how much you could owe if you max out all your cards. The lower the ratio, the better.
4. Review your credit report.
Retirees have a lifetime of experience, yet they can be the most vulnerable when it comes to identity theft. It’s up to you to stay vigilant by checking your credit report.
All three reporting agencies, Equifax, Experian and TransUnion, offer Americans one free credit report each year.
The report lists your lines of credit, payment history and court settlements like bankruptcy. All three are similar, so space them out to get one free report every four months.
5. Freeze your credit.
To help protect against identity theft, retirees might also consider freezing their credit history. It prevents lending institutions from accessing the report so scam artists can’t open a credit card in your name.
However, you can’t open new credit either. Many credit protection services, like Trusted ID, will lock and unlock your credit on demand, but it will cost you for the service.
Having good credit is essential to paying the lowest interest rates, avoiding fees and keeping more of your money. What’s more, it’s never too late to start.
Photo source: nerdwallet.com.