Retirement and Your Credit Score

17th Jun 2024

Retirement marks a transition in life where things slow down a bit, and you have time to do all those hobbies and take holidays you never had time for before. As you shift from a regular salary to a pension, you might wonder about how that might affect your credit score. Is this a valid concern – does retirement definitely affect your credit score in a negative way?

In basic terms, retirement itself doesn't directly influence your credit score. Personal details such as age, marital status, or income aren't factors considered in your credit report. However, retiring can affect your credit and borrowing capacity. Your credit score might not change but the change in the source of your income might have an effect when you start to consider affordability when you consider taken on more debt. This is because lenders often look at the amount of the repayment as a percentage of your total income, and as income decreases in retirement, affordability might be an issue where it has never been an issue before.

How Retirement Affects Credit Scores

There are two key ways in which your retirement status might affect credit and other financial matters. These are:

• Interest Rates: Lenders may adjust terms based on your finances now that you are retired, perhaps increasing repayments, or even closing accounts if your credit score gets too low.
• Security Deposits: Companies who carry out credit checks might require higher deposits after you have retired, especially if your credit score has declined since leaving the workforce.

Keeping a Good Credit Score After Retirement

The most important thing you can do to maintain a healthy credit score after you have retired is to make sure you keep making timely bill. Organise your finances carefully, setting up automatic payments where possible to avoid missing any payments by mistake. Also look at the percentage of your available credit which you are currently using. This is known as your credit utilisation ratio, and it’s best to keep the percentage of available credit which you are using in the 25% - 30% bracket.

Don’t be tempted to immediately rush to close older credit accounts which you ae not using, as having available credit you are not using, and a long history with a specific lender will contribute positively to your credit score. Make small, regular purchases on a credit card, always paying off the bill in full to show that you are still a responsible borrower.

Monitor Your Credit Score

By proactively managing your finances and keeping an eye on your credit score, you can keep your credit score healthy throughout your retirement years. There are many apps and websites where you can log in and look at your credit score, monitoring it over time to see how it changes. Minor fluctuations are generally nothing to be concerned about, but any sudden declines in your score should be investigated by ordering up a copy of your credit file. If you find any mistakes, ask them to put them right straight away.