In retirement, your credit score is still relevant in achieving and maintaining financial independence. The question is, how can you best understand and improve your score to reap the benefits of good credit?

Jake Doser, CFP®, CPWA® joins the Money Wisdom Question Series to break down some of the factors that impact your credit score and how to most effectively control them.

Consider Credit in Retirement

While you may think you’re out of the woods when it comes to needing credit in retirement, there may be times when you want to borrow money or when borrowing makes the most financial sense. For instance, when interest rates are low, taking out a car loan or a mortgage can actually pay less interest than what your investments could make.

While we don’t recommend taking on unnecessary debt, it’s important to understand that borrowing isn’t always harmful. Understanding your credit score can help you in using cost-effective methods to finance your retirement lifestyle.

Stay On Top of Your Credit Score

As you reach your financial goals, we recommend keeping a close eye on your credit health. There are several free online tools that can help you keep track of your credit score. For example, freecreditreport.com offers a free annual credit report and creditkarma.com gives you an estimate of your credit score from Equifax and TransUnion that you can monitor all year long. Credit Karma also notifies you about any recent credit impacts such as a change in your credit history or potentially fraudulent activity.

Keep Your Credit Utilization Low

One high-impact factor of your credit score is your credit utilization – how much of your total credit you are using. In general, it’s a good rule of thumb to keep your credit utilization ratio low to avoid negatively impacting your score. If you have a card with a $20,000 credit limit, for example, and you use $10,000, that’s a 50% utilization ratio. In this instance, it may be more beneficial to use smaller portions of your credit limits across several cards rather than maximizing out one card.

Hold On to Long-Standing Accounts

Whether you’ve had credit for three months or 15 years, it can make a real difference in your credit score. Lenders want to see that you’ve kept good credit over a long period of time. It may not be wise to apply for several credit cards in one year as shorter lengths of credit can lower your average credit length and negatively impact your score. Instead, try to keep your older accounts open and active to help improve your average credit age and boost your score over time.

Make On-Time Payments

Your credit history is also influenced by your record of making on-time payments. If possible, you want to make all your payments on time to improve your credit standing. Creditors will consider your payment history when assessing your credit risk, including any payments that were late and by how many days (30, 60, or 90 days).

Diversify Your Credit

A healthy mix of different credit types can have a positive effect on your credit score. A car loan, for example, is an installment loan, whereas a credit card is a revolving credit account. Lenders want to see a variety of credit utilization. This can help them evaluate how well you can handle multiple types of credit at once.

As we’ve discussed, these are important elements of your credit score that shouldn’t be overlooked. For more information on managing your credit, we recommend visiting trusted online sources like Bankrate or Investopedia.