This article is reprinted by permission from NerdWallet. Getting rid of debt before retirement is often a good idea. Getting rid of your credit scores? Not so much.
People who stop using credit also stop generating enough data to produce credit scores, the three-digit numbers used to gauge creditworthiness. Not having scores can make it harder and more expensive to get loans. Even if you’re sure you’ll never borrow again, lacking credit scores also can make insurance, cell phone plans and security deposits more expensive. Fortunately, you don’t have to be in debt to have good credit scores. You do have to use credit, however.More have debt, but millions are ‘credit retired’ Older people are more likely to have mortgages, car loans, credit card balances and other debt in retirement compared with a generation ago, according to Federal Reserve statistics. Seventy percent of households headed by someone age 65 to 74 had debt in 2019, the latest year available from the Fed’s Survey of Consumer Finances. That compares with 51.4% in 1998. Among households headed by someone 75 and older, 51.4% had debt in 2019 compared with 24.6% in 1998. But that still leaves a large population of older people who don’t have debt and may not be actively using credit. Leading credit scoring firm FICO
FICO,
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has found 7.4 million people are “credit retired,” with good credit histories but no active accounts, says Ethan Dornhelm, FICO’s vice president for scores and predictive analytics. Some were younger people who may have switched to a cash-only lifestyle, but most were older: The median age of the credit retired was 73, Dornhelm says. And credit scores can get “retired” relatively quickly. The FICO scoring formula used in most lending decisions needs at least one account on someone’s credit report to have been updated in the previous six months, Dornhelm says. Rival scoring company VantageScore looks back at least …
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