Borrowing Changes When You Retire
We don’t need to remind you that your life changes when you enter retirement, but we think it’s important to set the record straight on what those changes are, and what they can mean for you. A big one we’ve noticed recently is confusion around credit scores, borrowing, and your relationship with both when retirement comes.
There’s a handful of questions that affect your credit score and how a lender evaluates you for a potential loan.
Your age and retirement status are not among them.
Aging does not diminish your credit score, nor does entering retirement. What does affect those questions is your income and borrowing history. If your income is lower, that affects the lending question, and if your borrowing history is limited, that affects your credit score.
This matters because when retirement hits, you might switch to a fixed income that’s lower than what you had before. That’s the change that affects how lenders see you. And if you’re retired and you need a loan, that’s where your credit score enters the picture.
Your credit score doesn’t change when you retire; it’s the cumulative result of your borrowing history. And if you haven’t done much borrowing in the past, you could have what’s called a “thin credit file.” This refers to a person who hasn’t engaged in enough borrowing activity to have a credit score assigned to them. It doesn’t mean you were irresponsible with your money, just that there’s not enough borrowing activity to judge from. A “thin credit file” can combine with the lower income factor to make your loan process more difficult.
So while age and retirement themselves may not change your credit score, factors that come along with them can complicate your relationship with credit and lending.
We’re not telling you to start taking out loans you don’t want, or to put every purchase on a credit card. We just want to highlight how confusion around these topics can hide important information you might care about later in life. And in this case there’s good news: age affecting your credit score would be totally out of your hands. Your borrowing history isn’t.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
There’s a handful of questions that affect your credit score and how a lender evaluates you for a potential loan.
Your age and retirement status are not among them.
Aging does not diminish your credit score, nor does entering retirement. What does affect those questions is your income and borrowing history. If your income is lower, that affects the lending question, and if your borrowing history is limited, that affects your credit score.
This matters because when retirement hits, you might switch to a fixed income that’s lower than what you had before. That’s the change that affects how lenders see you. And if you’re retired and you need a loan, that’s where your credit score enters the picture.
Your credit score doesn’t change when you retire; it’s the cumulative result of your borrowing history. And if you haven’t done much borrowing in the past, you could have what’s called a “thin credit file.” This refers to a person who hasn’t engaged in enough borrowing activity to have a credit score assigned to them. It doesn’t mean you were irresponsible with your money, just that there’s not enough borrowing activity to judge from. A “thin credit file” can combine with the lower income factor to make your loan process more difficult.
So while age and retirement themselves may not change your credit score, factors that come along with them can complicate your relationship with credit and lending.
We’re not telling you to start taking out loans you don’t want, or to put every purchase on a credit card. We just want to highlight how confusion around these topics can hide important information you might care about later in life. And in this case there’s good news: age affecting your credit score would be totally out of your hands. Your borrowing history isn’t.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Laurel Financial Group is a separate entity from WFAFN.
This material is intended for informational and educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.