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Did you know that a lot of Baby Boomers think that they do not need a good credit score in retirement? At least, this is according to the latest survey conducted by TransUnion.com. The result of the survey revealed that almost half of Baby Boomers (those aged 51 to 70) say that they believe it is no longer important to keep a good credit report if they get past the age of 70. If you think about it, what will a 70-year old do with a good credit rating? They will no longer buy a house or a new car. They do not need a good score to have the best chances of getting a job. What good would a stellar credit report be? Before we answer that, let us ask this: why do you need to sacrifice your credit score in the first place? The answer is simple. You may have to sacrifice your score for debt freedom. One of the things that you need to do in your pre-retirement yearsis to get rid of your debt. The thing is if you are about to enter retirement, your time to get rid of debt is limited. You need to maximize the time that you have while you are still receiving a steady stream of income from your day job. Once you retire, it will be difficult for you to pay off your debts because your money will now be limited. You cannot use your retirement money to pay your creditors because you need it to finance your basic needs. The best option for you is to pay your debts completely before you enter retirement. But how can you do that if you will enter retirement in a few years? You need to opt for debt reduction. This is a debt relief program that will allow you to get out of debt by paying a smaller amount than what you really owe. This will help you save money so you can spend more during retirement. However, there is a catch. In most cases, debt reduction can help you pay only a portion of your debt and pay it fast - but it comes with a cost. That cost is your credit score. Now here is another question: should you sacrifice your score so you can enjoy a debt-free retirement? The answer to that will depend on you.
When is it okay to let your credit report be tarnished by debt?There are three things to consider if you want to prioritize your debt over your credit score. Are you sure your debt will be gone if you go through debt reduction? If you are sure that all your debt will be paid off after the debt reduction, then you can go ahead and let your credit ranking slip. If this sacrifice will result in your debt freedom, then it should all be worth it. Not only will you save money, you can also enjoy the stress-free life of having no debt to worry about. You will feel happier entering retirement without it. But if some of your debts will remain even after this debt relief program, then think twice before you go through with it. There may be a different option available. If you do not need to get a loan in the near future. Are you sure that you do not need to get a loan in the future? If the answer is no, then it is okay to let your credit score suffer for now. A debt reduction could result in a bad score but if you have no use for a good score, you can afford to let it go down. Your credit ranking will improve over time. If you do not need it to be high for a couple of years, it is okay to sacrifice it if that means you can retire without debt. If your retirement money is small. Finally, if you know that your retirement fund is small, you should not share it with your debt payments. It is important that you use your funds for you basic needs alone. This should give you more motivation to work harder to pay off your debt completely. If you share it with your debts, you might outlive your retirement money. If that happens, you will end up with no money and too old to do any more work. In case you have to sacrifice your credit score for your debts, that is okay. Remember, you can always rebuild your credit score. You simply have to do three things.
- Keep on using credit smartly. This does not mean you should bury yourself in debt once more. Use your old credit cards for the things that you need. Instead of using cash, use your card and just put aside the money and make sure you do not spend it. That way, when the billing arrives, you can use that cash to pay off the balance completely - avoiding finance charges. This will keep you from increasing your debts once more.
- Always pay your bills on time. Since you still have utility bills and if you will continue to use your credit card, make sure you pay it on time. Remember that late payments can have a huge effect on your credit score - specifically in a FICO score. If you pay your dues on time, it is an indication that you are a responsible credit holder.
- Check your credit report for errors or signs of identity theft. Credit monitoring is a part of your efforts to rebuild your score. You need to be on guard. There are times when you think your efforts have brought your score up but because of a mistake, either by the creditor or the credit bureau, your ranking went down. Worse, you may be a victim of identity theft. According to KrebsonSecurity.com, there was nearly a 50% increase in identity theft complaints in 2015. If you monitor your credit regularly, you can spot these errors or identity theft incidents and report immediately.
When should you take care of your credit history despite your debt?Of course, there are situations when you need a good credit score even if you are already retired. According to Consumer Credit, there are 4 reasons why you need a good credit history.
- You want to pursue a second career. Some people just do not want to stop working. Most of the time, they pursue something that they love to do - like a new business. If you need to get a business loan to support a dream venture, you need a good score for that.
- You want to save money. In case you need to refinance your mortgage, you will save a lot of money if you have a good credit score. This will help you get a low-interest rate on the refinancing. If you have a bad score, you will be given a high-interest rate - which will be costly for you.
- You want to downsize. If you want to buy a smaller house, you need a good score - if you intend to use a home loan for it. Not only that, if you plan to rent, the landlord will look at your credit history to check if they can trust you to pay them regularly.
- You want to travel. Retirees love to travel and having a good credit score will help you get travel rewards. You need a good score to be able to reimburse some of the travel fees that you paid.