Everyone wishes for a peaceful retirement with no financial worries. When you are young, you take various loans which require a good credit score. You maintain a good score to get loan approvals. A credit score is assigned by the credit bureaus and ranges between 300 and 900. While a score above 750 is considered high, between 600 and 750 is average, whereas below 599 is a poor credit score.
Having a good credit score matters even after retirement as the credit bureaus do not take into account your retirement or age. You should maintain a good credit score till the time you retire and thereafter. Let us find out the reasons in this blog.
The Role of Credit Scores in Retirement Planning
Your credit score plays an important role in how well you can plan for your retirement.
- Better deal with loans: When you apply for a home loan or a credit card with a high credit score, you are perceived as a responsible borrower. You also get the advantage of getting a high loan amount with a lower rate of interest and more flexible terms and conditions. On the other hand, if you apply with a low credit score, you will have to pay a higher interest rate.
- Lower insurance premiums: Many insurance companies charge a lesser premium to those having a good credit score. If you have a low credit score and buy insurance, you will need to pay a higher premium and hamper your retirement savings.
Maintaining Credit Health in Preparation for Retirement
Having a good credit score throughout your active work life will help when you retire. Life can always be uncertain and even post-retirement you must be ready to handle financial stress. Let us understand the importance of credit scores in retirement.
Although there is no direct impact of retirement on credit score, your credit behaviour pre-retirement may affect your credit score and eventually your retirement life. You must maintain a good credit score when you are young and have a regular flow of income. Once you retire, the banks are not keen on lending to seniors as the salary income stops. Having a good credit score in retirement will give you an upper hand in getting loans or credit cards. Here are some tips:
- Do not close credit cards: Keep your credit cards till retirement as they help in increasing credit history. This will help you maintain a good credit score for retirement.
- Do not carry over debts: Try to close your loans before your retirement. Since the income reduces after retirement, carrying over your debts is not good for your credit score as it increases the debt-to-income ratio.
- Keep your other sources of income ready: Since your salary income stops after retirement, it is good to have multiple savings like fixed deposits, shares, gold, etc. These can be pledged to the bank when you take loans after retirement.
Impact of Credit Scores on Retirement Finances
A good credit score not only helps during your employment days but also in your post-retirement life. Maintaining a good credit score will assist you in getting the best deals on loans. Lenders will easily approve your loan if your credit score is above 750. With this credit score, you will be categorised as a least risky borrower. You will save substantially on interest payments as you get the best rate of interest with an excellent credit score.
Even after retirement, a good credit score will help you manage your finances conveniently. As a retiree, if you approach a bank with a loan request, you are seen with a different lens due to a lack of steady income sources. In this case, your repayment history helps to build up your credit score. Credit bureaus do not record your income and provide scores based on your credit behaviour. Keep your credit score high post-retirement to manage unexpected expenses that may require financing.
Credit Score's Connection to Personal Benefits
- Moving to a new place or renovating your house: It becomes difficult to manage a big house post-retirement and you may plan to buy a smaller home. Additionally, your current home may need some urgent repair or renovation. A good credit score will help you in getting a bank loan for such expenses with favourable terms and conditions.
- Medical emergencies: During the later stages of life, individuals become more susceptible to unforeseen and abrupt health issues that may require immediate medical care. The costs associated with hospitalization and medications can significantly deplete your savings. In such emergency situations, obtaining approval for a personal loan is more likely if you possess an excellent credit score.
- Avail of credit card benefits: Since you do not have a stable and steady income after retirement, you become more careful about your expenditure. Many credit cards offer cashback and shopping discounts.You can easily get such useful credit cards with good credit scores.
- Starting your business: Many retirees with regular 9 to 5 jobs do not get time to pursue their passion. After retirement, if you want to start your business venture it is a good idea to have a decent credit score for getting your bank loan approved.
Improving Credit Scores for Enhanced Retirement Prospects
- Make due payments on time: You must pay all your dues within time to avoid any defaults. A clean repayment history helps in increasing the credit score and will eventually help in retirement.
- Optimal credit card utilisation: Overutilisation of credit cards causes a decline in credit scores. Hence, you should use only 30% to 40% of your credit card limit at any given time. This will keep your credit score high even after retirement.
- Avoid multiple loan applications: Apply for only one loan at a time. Multiple inquiries or applications decrease your credit scores.
- Balanced credit portfolio: Having both secured and unsecured loans and credit cards keeps your credit score healthy.
Conclusion
You have learned about the factors that emphasised the importance of credit scores in retirement. You may need financing for sudden medical expenses, house renovations, change of location, or for starting a new business. Shriram Finance is a trustworthy institution that offers loans at lower interest rates. Click here to get the best deals on loans with Shriram Finance.
A good credit score also helps in getting the best credit card with great offers and cashback rewards. You must maintain a good credit score throughout your employment and work life to carry the benefits in your post-retirement life.
FAQs
Does your credit score go down when you retire?
No. Your credit score is not affected by your income, profession or age. Hence, your credit score will not go down when you retire.
What is a good credit score for seniors?
A credit score in the range of 750 to 900 is considered good. This applies to everyone irrespective of age.
Can a retired person get a credit card in India?
Most of the banks offer credit cards up to the age of 70 years. Retired persons can easily avail of a credit card against their fixed deposits.
Which credit card is best for pensioners?
Several banks offer credit cards for pensioners with special benefits and offers based on their present age and pension amount.
What is the last age limit for a credit card?
The upper age limit varies from bank to bank but it is generally between 65 and 70 years.
Key Highlights
- Retirement does not affect your credit score since your income and profession are not reported to the credit bureaus.
- Keep a good credit score throughout your work life to save more on loans for retirement finances.
- Credit score should be good post-retirement as it helps in financing sudden expenses in emergencies or getting a high reward credit back for extra savings.
A good credit score in retirement helps in getting lower interest on loans and lower premiums on insurance policies.
