Rounding it up
Your retirement doesn’t show up on your credit score, but retiring can impact your credit rating in other ways.
Having a good credit score in retirement can make it easier to get good rates on loans and credit cards.
Retiring with a low credit score can make it more difficult for you to get financial assistance when you need it.
Regardless of what your score is when you retire, you can improve your credit rating after you stop working by continuing to make payments on time and in full whenever possible.
Planning for retirement can be a daunting task. Ensuring that you have enough money and resources to help you enjoy the most of your golden years is challenging because there are so many variables that you need to account for. From RRSPs and TFSAs to government pensions, figuring out your financial situation in retirement is no walk in the park.
However, there’s one financial aspect of retirement that few people talk about: your credit score.
Credit scores are an integral part of your financial health before your retirement as they can affect whether you qualify for a credit card, car loan, mortgage, or even an apartment lease, and on what terms. In other words, your credit score can have a huge impact on your budget and day-to-day life.
But do credit scores matter for retirement? Do you need to have good credit to retire comfortably?
Coming up, we’ll take a closer look at whether or not credit scores matter in retirement. That way, you can be prepared to live out your work-free years in style.
Do Credit Scores Matter for Retirement?
Depending on your financial situation before and after retirement, your credit score may or may not be important during your golden years.
For people who have more than enough money saved to comfortably retire, the specifics of your credit score probably won’t matter. But if you think you might need to apply for a mortgage or loan in retirement, your credit score could have a big impact on your financial health later in life.
But as a general rule, most people should pay attention to their credit scores in retirement.
According to a CIBC poll, an estimated 90% of Canadians don’t have enough retirement savings. That means that the majority of retirees in Canada may need to apply for a loan or credit at some point in retirement just to stay financially stable. Having a solid credit score can make it easier for you to access extra funds when you need them most in retirement.
Credit Scores & Retirement: What You Need to Know
Credit scores and retirement are both complicated financial topics in their own right. Let’s take a closer look at how these two are interconnected so you can be better prepared to make the most of your retirement.
How Does Retirement Affect Your Credit Score?
Although your credit score is probably going to be relevant in retirement, it’s important to keep in mind that the simple act of retiring won’t show up on your credit score.
Your credit score is calculated based on a variety of factors, such as your personal credit history, credit utilization ratio, and track record of on-time payments. However, your credit score doesn’t take any non-financial personal information into account, like your employment status, age, religion, ethnicity, or race. So there’s no way for a credit bureau to know that you retired.
That said, retiring can impact your credit score and your ability to get a loan or open a credit card.
If you retire and subsequently struggle to pay your loan and credit cards on time, your credit score will suffer. But if you retire and maintain healthy financial habits, your credit score could increase.
Additionally, when you apply for credit, be that with a credit card or a loan, most lenders ask about your estimated monthly or annual income. If your income in retirement from your RRSP or pension is less than you made when you were working, you may find it harder to get loans than it was before you retired, especially if you already have other debt, like a mortgage.
Keep in mind that retirement doesn’t have to negatively impact your credit score. In fact, some people find that their credit score increases later in life. The important thing is to have a retirement savings plan so that you can maintain your current lifestyle even after you stop working.
How Does Your Credit Score Affect Your Retirement?
Even though retiring doesn’t necessarily affect your credit score, your credit score can have a big impact on your life in retirement—especially if it starts to fall.
To understand why this is the case, consider this: A recent Survey of Financial Security (SFS) found that over 40% of retired individuals and couples in Canada have debt.
Each of those retired Canadians has debt to pay off as well as regular expenses to keep on top of. Getting out of debt can be really challenging, even when you’re fully employed.
If you’re living on a fixed income from a retirement plan or pension, paying off that debt in a timely manner can be even more difficult.
Should you fall behind on your loan payments in retirement or need to take out more credit to stay afloat, you could end up with not-so-great terms on a loan that could make your financial situation even more challenging. In fact, nearly 15% of elderly single people in Canada live below the poverty line. Having a low credit score certainly doesn’t make things any easier.
Of course, it’s not all doom and gloom.
Retirees with great credit scores and solid savings often find that they get lower rates on loans, credit cards, and even insurance payments. This can make enjoying your retirement so much easier as you can spend less of your money on interest payments and more on the things that matter most.
For most retired Canadians, a credit score isn’t their most pressing concern. But having a good credit score can make your financial situation a whole lot simpler while having a poor credit score can make things unnecessarily complicated.
Tips for Keeping Your Credit Score High in Retirement
If you’re concerned about your credit score in retirement, don’t fret. There are ways to maintain or improve your credit rating even after your last day at work is all but a distant memory.
To keep your credit score high in retirement, consider doing the following:
Pay Your Bills On Time & In Full – As is the case before you retire, paying off your bills on time and in full every month is one of the best ways to improve your credit score. Creditors love to see that you’re reliable in your ability to pay off debt. The faster you can reduce your outstanding debts, the better your credit score will be in the long term.
Avoid Regularly Opening New Credit Lines – Credit is a powerful tool, but it has to be treated with care. While having lots of shiny new credit cards can earn you lots of cool cash back and airline rewards, opening new cards can negatively impact your credit rating. Of course, if you need to take out a loan or you’re really excited about a specific rewards card, then don’t feel like you need to hold yourself back. But a bit of restraint here can go a long way toward maintaining or improving your credit rating.
Don’t Close Your Old Accounts – It might not make a lot of sense at first, but closing a line of credit can actually negatively impact your credit score. That’s because lenders consider the age of your oldest credit line before approving you for a loan or new card. Ultimately, closing your first credit card to get a fancy new cash back card isn't always the smartest move.
Stay Aware of Identity Theft & Scams – Retirees and senior citizens are often popular targets for identity theft. These thieves like to trick people by posing as family members in need or as government employees. Identity theft can destroy a lifetime’s worth of responsible credit use in just a few days. So stay vigilant and be extra cautious around anyone asking you for money or personal information.
Retiring Soon? Don’t Forget About Your Credit Score!
Your credit score might be the very last thing on your mind when you’re planning for retirement. But even though your retirement date won’t show up on your credit report, it’s important to maintain good financial habits later in life. Paying off your debt on time and in full whenever possible can set you up for success long after you hand in your final notice at work.
Gaby Pilson is a writer, educator, travel guide, and lover of all things personal finance. She’s passionate about helping people feel empowered to take control of their financial lives by making investing, budgeting, and money-saving resources accessible to everyone.