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When her car trouble began, Beverly Dobratz, 70, assumed that years of responsible credit usage would qualify her for a new car loan with a low interest rate.
Then the salesman checked her credit and learned that she hadn’t made any purchases with it in 10 years; she preferred to pay with cash or her debit card. That had hurt her credit scores, preventing her from getting a deal that worked for her.
“It was quite a shock. I had a huge down payment for him, but it didn’t make any difference,” the Long Beach, California, resident says. “I didn’t get the car.”
About one-third (34%) of American baby boomers risk damaging their credit scores in retirement by reducing or eliminating their use of credit cards, according to a survey by TransUnion, one of the three major credit bureaus that gather information used to calculate the scores. (TransUnion is a NerdWallet business partner.)
Using credit cards for small purchases keeps your credit active, says Heather Battison, a vice president at TransUnion. That can help ensure you’ll have available credit — or good credit scores — when it counts. Keeping credit cards active doesn't mean running up debt. Think of them as tools for maintaining credit, not a temporary loan.
Why you might need credit in retirement
You can plan for retirement, but it’s impossible to predict exactly what will happen in your 80s or 90s. The average 65-year-old today will live until his or her mid-80s, according to the Social Security Administration.
That’s why it’s important to maintain a strong credit profile even if you don’t foresee borrowing money again. You might need it in retirement for many reasons, such as an unexpected car purchase, as happened with Dobratz. Other reasons include:
Finding housing. Some independent living facilities require a pre-admission credit check, the way a landlord might run a credit check before renting an apartment.
Co-signing a loan. You’ll need good credit to help a child or grandchild qualify for a loan or credit card by co-signing.
Refinancing your home. If you still have a mortgage, refinancing can lower your interest rate and monthly payments, which might be attractive after retirement.
Getting a home equity line of credit: You can use this type of credit to finance repairs and upgrades that will make your home more accessible, says certified financial planner Delia Fernandez. For example, you might widen doorways to accommodate a wheelchair or walker.
“It’s an example of things we don’t think about because we’re not 80, but how much better to prepare the house before we turn 80,” Fernandez says.
Keep your credit cards active
Recently, Battison’s dad moved to independent living facility. “All of the furniture that he had in his home was too big and we all of a sudden needed to completely furnish this apartment,” she says. “Because he didn’t use his credit card as often, we ran into some issues there.”
Unused accounts risk being closed by the issuer. This lowers your total available credit, which can lower your credit scores. And closed accounts eventually drop off your credit report, which can cause further damage by reducing the average age of your accounts.
TransUnion consumer data show that 20 percent of people ages 51 and 70 have subprime credit, or a score of less than 600.
Opting out of credit is a gamble
Your retirement plan might appear bulletproof, but circumstances easily change — and if they do, it’s nice to know you can lean on your credit.
“You never know when you’re going to need something,” Dobratz says. “Hang on to that credit. Otherwise, they’re going to charge you high interest on your loan.”