7 credit mistakes that will affect your retirement
A few decades ago financial management in your 50s and 60s was simpler. The kids would have left home and preparing the nest egg for a fantastic retirement was the focus.
Fast-forward to 2016 and things have changed. Both Australia’s average retirement age and life expectancy have increased significantly. Those decades previously considered a ‘wind down’ period are being ramped up with new adventures - and financial challenges.
Whether paying off an extra overseas trip or helping children buy property in an inflated housing market, your credit rating plays an increasingly important role during retirement. It’s also important to have good credit in case life throws you a curveball and you find yourself needing emergency funds – and fast.
For these reasons, staying on top of your finances, futureproofing yourself and maintaining a positive credit score is increasingly important. A credit score is a numerical representation of your ability to meet debt repayments. Lenders use your score to determine whether you can borrow, how much you can borrow, and at what rates. We all want more out of our 50s and 60s, so we need more out of our funds and credit as well.
But while credit offers a valuable resource in the short term, many Australians aren’t aware that a poor credit score can have negative impacts in the long term.
In fact, a recent survey conducted by GetCreditScore.com.au found 67% of Australians claim financial mistakes made before they turned 30 had an impact on their quality of life and ability to access loans. Imagine how much damage you could do by the time you reach your 50s or 60s!
To help Australians minimise the impact they’re making to their credit score and build solid financial foundations before and during retirement, GetCreditScore.com.au has identified seven credit fumbles Australians make without knowing it:
1. Not keeping track of your credit report and credit score – Knowledge is power. Keep up to date and get your personal credit score in 60 seconds for free at the Get Credit Score website.
2. Using credit for insignificant purchases – While it may make sense at the time, splurging on gifts for the family and charging it to your credit card will not do you any favours in the long run. Look to limit your credit purchases to absolute necessities or take out a loan with a low interest rate, ensuring you meet (and where possible, surpass) your minimum repayments when they are due.
3. Neglecting research before you apply for a loan or credit card – Whether or not you are successful in applying for loans or credit cards, it raises red flags and can damage your overall rating. Crafty banks, utilities and lenders view this sort of activity as ineffective management of finances and are more likely to leave you high and dry next time around. Certainly apply for a credit card or loan when you need it to help achieve your financial goals, but beware that frivolously submitting applications can do major damage to your credit score.
4. Applying for credit several times – When it comes to credit, the mantra ‘if at once you fail, try and try again’ does not apply. If you continue to apply for credit even after you were refused it from a credit provider, these enquiries will significantly reduce your credit score.
5. Failing to pay your bills on time – It might seem a bit obvious, this increases the amount you will end up paying overall and overdue accounts are kept on your file for up to five years. If you fail to make your utility or loan provider at all, you could risk having these become listed as a default. Defaults are kept on your file for up to seven years.
6. Not shopping around for the best deal – When it comes to internet deals or even the weekly groceries, we all shop around. And you can do the same with loans and look into which lenders will give you the best rates. Many peer-to-peer lenders, such as SocietyOne, reward you for a solid credit profile with a great rate. Knowing your score also gives you great leverage to negotiate lower rates and fees on your outstanding debts.
7. Closing credit accounts – This one mistake is not commonly known. If your first thought after paying that last credit card statement is to close your account, hold on just a minute. Closing your account will actually lower your available credit and increase the debt-to-credit ratio on any other outstanding debts.
Do you know your credit score? Are you guilty of making any of the above mistakes that could put it at serious risk? Please let us know in the comments below.
Written by Mitchel Harad, a representative of GetCreditScore.com.au, a useful, consumer-friendly company looking to help more Australians learn about their.
To check your credit score for free, follow this link.
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