Don’t Let Your Credit Scores Retire

Getting rid of debt before retirement is often a good idea. Getting rid of your credit scores? Not so much.

People who stop using credit also stop generating enough data to produce credit scores, the three-digit numbers used to gauge creditworthiness. Not having scores can make it harder and more expensive to get loans. Even if you’re sure you’ll never borrow again, lacking credit scores also can make insurance, cell phone plans and security deposits more expensive.

Fortunately, you don’t have to be in debt to have good credit scores. You do have to use credit, however.

Older people are more likely to have mortgages, car loans, credit card balances and other debt in retirement compared with a generation ago, according to Federal Reserve statistics. Seventy percent of households headed by someone age 65 to 74 had debt in 2019, the latest year available from the Fed’s Survey of Consumer Finances. That compares with 51.4% in 1998. Among households headed by someone 75 and older, 51.4% had debt in 2019 compared with 24.6% in 1998.

But that still leaves a large population of older people who don’t have debt and may not be actively using credit. Leading credit scoring firm FICO has found 7.4 million people are “credit retired,” with good credit histories but no active accounts, says Ethan Dornhelm, FICO’s vice president for scores and predictive analytics. Some were younger people who may have switched to a cash-only lifestyle, but most were older: The median age of the credit retired was 73, Dornhelm says.

And credit scores can get “retired” relatively quickly. The FICO scoring formula used in most lending decisions needs at least one account on someone’s credit report to have been updated in the previous six months, Dornhelm says.

Rival scoring company VantageScore looks back at least 24 months for updated accounts, says Jeff Richardson, senior vice president of marketing and communications at VantageScore Solutions.

Among the credit retired, the median length of time since an account was updated was over four years, Dornhelm says.

Having a paid-off mortgage and no other debt can be helpful when you’re retired on a fixed income. You won’t have to draw down your savings or use your limited income to make debt payments. But maintaining good credit can be helpful if you need to borrow to pay an unexpected expense, finance a late-in-life move or deal with a cash flow crunch, among other situations.

Life is unpredictable, and few can be certain that they will never need credit again, says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling.

“A good credit score can provide peace of mind, financial security and flexibility, even if you don’t predict the need for a new loan or credit card account during retirement,” McClary says.

Even if your borrowing days are truly behind you, nonexistent credit scores could cost you in other ways:

• In most states, insurers use credit information to set premiums for auto and home insurance.

• Getting a cell phone plan can be tough with poor or nonexistent credit, and cell phone providers often reserve their best deals for people with good credit scores.

• Utility companies may demand larger security deposits for people without scores.

• Senior housing — including assisted living facilities, continuing care retirement communities and even some nursing homes — may require applicants to pass a credit check.

Fortunately, you don’t have to go back into debt to maintain good credit scores. Using a credit card or two, and paying off the balances in full every month, should suffice. Card issuers report payments to the three major credit bureaus — Equifax, Experian and TransUnion — each month, keeping your accounts updated so your reports can continue to generate credit scores.

Try not to charge too much on a card, however, even if you pay in full. Using too much of your credit limit can hurt your scores. The fewer active accounts you have, the more damage you could do.

If you’ve already let your credit scores retire, it’s not too late to get them working for you again. Being added as an authorized user to someone else’s credit card can be enough to revive your scores. Another option is a secured credit card, which requires a cash security deposit that’s usually equal to the credit limit you get. Finally, some credit unions and online lenders offer credit-builder loans. These loans put the amount you borrow into a savings account that you can tap after you make all the monthly payments.

Good credit scores are worth the effort regardless of your age.

“If you continue to have credit activity and a good credit score, you’re in the driver’s seat,” Richardson says.