If you are getting close to retirement or are recently retired, chances are it’s been awhile since you applied for a new credit card, car loan or mortgage.
But that doesn’t necessarily mean you won’t in the years to come.
Monitoring and managing your credit is just as important today as at any other time. And in addition to the possible requirements for credit mentioned above, U.S. News and World Report’s Robert Berger lists a few other credit score-driven benefits:
- Mortgage Refinancing: 40% of households headed by seniors age 60 to 64 have a mortgage; a high score allows for better rates if you decide to refinance.
- Credit Card Rewards: On-time and full-balance payers with high scores gain access to points that translate to discounts on merchandise, and in some cases on travel.
- Lower Insurance Rates: You are probably unaware of this, but insurance companies care about your credit score, and factor it into your car, homeowner and life insurance rates. Higher scores can mean lower rates.
- Post-Retirement Jobs: I’ve highlighted a few of these recently, and in some cases, doing what you love might require some capital — and thus might require a loan to get you started.
While keeping up your credit certainly isn’t easy at any stage of life, doing so into retirement age can be made more difficult as outside forces (read: family and friends) might ask you to “help out” with a purchase, investment or even a difficult credit predicament not of your doing.
It’s OK to help out in these circumstances. Just make sure you understand the potential pitfalls, and try to mitigate your own risk as much as possible.
For instance, co-signing or guaranteeing loans or leases means you are liable for the debt if your “other party” can’t make payments. Further, the obligation goes on your credit report, as will the payment history. Just like a banking institution, know your co-signer, and spell out the consequences for both parties (in the event the obligation starts to go badly) before you sign on the dotted line. You can help your situation by insisting on a bigger down payment to lower the amount owed, or if you have the funds, consider directly funding a bigger down payment in hopes of your potential co-signer being solely approved for a lesser loan, taking you off the hook altogether.
As for leasing arrangements, again, cover your backside: When my son changed schools prior to the start of a college semester, as co-lessee on an apartment lease, I was contractually obligated to pay for a 12-month period. I was fortunate in that as part of my agreement with the school, the rental agents worked to find a substitute tenant, and I was off the hook for several months of an empty apartment. But always ask if there is an “out” on the lease payments, and if so, what action must be taken.
Or, let’s say you have a nephew who is looking for investors so he can start a new business. By all means, provide some seed money if you can — just make sure there is paperwork that absolves you of any liability just in case the business doesn’t pan out. Consult an attorney if necessary. If your relatives or friends accuse you of not believing in their business or in them, explain that you’re only protecting yourself against a worst-case scenario. If that’s still not enough to quell their emotions, however, you might want to reconsider your investment.
After all, you’ve worked hard not only for your money, but your credit history. Both deserve your protection.
Marc Bastow is an Assistant Editor at InvestorPlace.com.