When you think about retirement planning, your focus is always on building your retirement income to secure the financial stability for your future. But will you be keeping a close watch on your credit reputation? It can make a lot of difference.
Credit is an interesting thing. Some people think they have too much of it; others believe they do not have enough; and there are those who do not even want any of it.
In today's society, regardless of how you feel, credit is a powerful thing and it matters in your daily life. Even if you are approaching your retirement, and your borrowing days seem to be over, the importance of credit reputation remains the same.
Here are 3 credit mistakes you must avoid when you work towards your retirement.
Mistake #1: Think your Credit Score no longer matters when you retire
When you enter retirement, your income will be significantly lesser than what it was during the years you have worked hard for.
On contrary, your credit score records the history of your credit reputation and it has the ability to impact many aspects of your life, even up till the stage of retirement.
There are two common events where you have to show you have a good credit score:
Having a good credit score is for the bank to ascertain that you are a responsible user of credit. It allows the bank to assess your financial management behaviours and reveals how reliable, capable and efficient you are in borrowing and repaying your debts.
Moreover, the unexpected may happen without warnings. You might find yourself in need of money for
- Medical expenses due to illness
- Supporting family members in the event of emergency
- A business opportunity which you always dream about
These are times when you just need a bit more cash. But if you are not able to raise the money in a short period of time, you may have to end up selling your house, which has a long term impact of your retirement planning.
You should always remember that bank will least likely to lend you money when you need it the most.
Mistake #2: Cancel your credit cards
Very often, I meet people who view credit card as a devil for overspending and are proud of not having any credit card. The irony is that closing credit card accounts can potentially hurt your credit health.
It is very common that people who have GX credit score (no credit history) are not able to borrow money when they need. This is because when you close a credit card, you reduce your overall available credit and the average age of all of your accounts. It also affects your credit utilization ratio.
The credit utilization ratio is the percentage of available credit that you are actually using. For example, if you have a credit card with a limit of $10,000 and you have a balance of $6,500 on the card, your credit utilization is 65%. A higher ratio negatively impacts your credit reputation. Lenders rely on past repayment history to gauge how you will perform in the future.
If your intention is to borrow money to buy a house for your retirement planning, but you have no credit history for the bank to access, you will face big issue.
You may think you are a person with good credibility, but what matters is if the bank thinks the same.
Mistake #3: Failure to monitor Your credit report
You probably have never checked your credit report before and I urge you to do so. Credit report can have errors and there might be identity theft too. Both of these have the ability to tarnish your credit reputation.
Any incorrect information you find on your credit report could be affecting your credit score. If you only find that out when you want to borrow money, it is just too late.
My advice is to check your credit report with Credit Bureau Singapore (CBS) once a year and get it fixed if you do see any mistake or factors that have pulled down your score.
Your credit reputation is a safety net for your retirement planning
Retirement planning is not just about accumulate wealth but also preserve wealth. Your credit reputation is crucial to maintain your financial integrity.
Since you are not able to foresee your borrowing needs, it is important to maintain a good track record all the time to prepare yourself ahead for future credit applications.
Click here to learn more about how to improve your credit score.
This article first appeared on SG Money Matters.com.