After working for years and paying your dues, you will probably be nice and relaxed once your retirement arrives. Enjoying your golden years can be a great feeling after putting in countless hours at the office, but that enjoyment can be hindered if you have bad credit. A high credit score is an integral part of financial planning. You may think that a credit score is only used when applying for mortgages or other loans, but it can actually have a tremendous effect on your other finances, too. Here are a few ways a low credit score can affect your retirement:
Paying off debts and not saving
One of the main contributors to a low credit score is that you have a great deal of debt. If you have a high credit utilization ratio, you probably are paying back your debts and not leaving room to save for retirement. Before retirement you should do your best to save as much as possible.
Higher interest rates become a problem
With a low credit score, you will incur higher interest rates for mortgages and other major investments. Under the burden of higher rates, you will be delivered more expensive charges on the loans you are paying back. This can hinder your cash flow as you sink all of your extra money into dealing with these debts. It can also prevent you from saving for your 401(k) plan or opening a Roth IRA.
Prevent you from downsizing
As you are reaching retirement, you may try to scale back on a few expenditures. Trading in a car or downsizing a home are a few common things retirees might do to help them during this time. You can also look into refinancing your mortgage, which can lower your interest rates. A higher credit score gives you the opportunity to reduce these charges. You can meet with your lenders to see if they will give you a little wiggle room, which is why it's best to have the highest score possible.
Affects job search
If you are just starting out with your retirement fund, you will probably look for a job that will contribute nicely to this savings fund. You'll probably feel more comfortable if you are employed by a company that can deliver a good 401(k) plan and assist you with your retirement. But a low credit score can actually affect your chances of getting one of these positions. Some employers will look at your credit report, only if you allow them to, in order to gauge your potential performance as an employee. If they see blemishes or a low score, they may not feel like you are a dependable judge of character. They cannot deny you a job outright because you have a poor credit score, but they can use it as a component in their decision. If this occurs, you may have to find employment somewhere else that won't give you the retirement options you need.
Ways to improve your score
The best way to counteract these problems is to start repairing your credit. This is not an overnight process, but if you work on it over time, you can have a better score by the time you reach retirement. You can repair it by using a few of these methods:
- Make payments on time
- Pay extra on debts
- Avoid opening new accounts
- Be patient