Retirement Planning: Fix that Credit Score Now!

That sounds easy enough. Fix that credit score and the world of low interest rates, hassle free loans and financial security await you. And that is true. But how much should you agonize over the number? Apparently not that much. (Unless of course you are close to retirement.)

The Best Credit Score
You have heard people boast about their high credit scores, suggesting that once you breach that 800 mark (850 being the highest mark Fair Isaac, inc or FICO gives to the best), it will all be clear sailing. But if you didn't know, you don't even need an income to score that high. You don't need a good employment history. heck, you don't even have to own a single asset. That college grad/student living in your basement, with no job and no debt (some have actually paid as they went, using the community college option to keep costs down and college debt doesn't show up until your graduate) could score higher than you.

As Karen Blumenthal of the Wall Street Journal refers to it as: "less like a report card and more like an SAT score—your results on a particular date that seek to predict your future credit success or failure." This flies in the face of what you may think about these scores. Behavior is not the only thing these credit scorers look at.

When credit scorers look at you through their lenses, what they see is someone who uses credit. You may assume because you pay off your bill, you place on the pedestal is assured. It may be provided you use less than half of what (credit limit) is available to you each month. Charging everything you buy in the hopes of getting rewards such as cash back or airline miles can actually jeopardize that score - even if you pay it off each month.

Some Quick Thoughts
If you plan on applying for a mortgage or buying a car, back off on your credit card usage in the months prior to the application. Although a good credit history can stay on your report for life - from the very fist card you have to the accounts that were closed in good standing to the cards in you wallet - what you do stays with you.

That doesn't mean you will always be perfect. No one is. But if you do find yourself behind as much as one day, don't put the call off. In many instances, your creditor does not report your tardiness for thirty days, even though they will charge you a late fee immediately. Calling assures them you are aware of the problem and not about to let it go for an additional month. At that point, they will report you.

Keep in mind, these mishaps stay around for about seven years. But good credit lingers. Some folks believe that lots of open accounts signals a problem. That may be so in some instances but those inactive accounts with zero balances reflect the creditors unwillingness to close the account due to inactivity - not your need to remove the temptation.

Beware the offers to monitor your credit score monthly. These services are mostly unnecessary. You know where you stand and if you don't, once a year should suffice for most of us. AnnualCreditReport.com offers a once year check on your credit but does not give out a score.

Keep in mind that once you are over the 700 level and approaching the 750 mark, you have done all that is worthwhile to improve your credit profile. Higher than that will not reflect in a lower rate. But every 20 points leading up to that mid-700 number will have a slightly better impact on your overall score, netting you a slightly better interest rate.

When it comes to Retirement Planning
Credit scores are for more than first time home buyers. They need to be repaired will you are still working. If your credit score is in need of repair, now is the time to do it. For many of us, we will be working later in life or carrying a mortgage into retirement - something our parents never did. Getting the best possible loan is key to making your retirement cash last. Although paying off the loan is still better.

Where You Live; What you are Worth - Retirement Planning and Credit

Do you live in a state where housing has taken a big hit? Do you live in, near or around a place where credit has all but dried up and foreclosures have appeared like so much acne before prom night?
Have you felt immune to the downside fallout of those events because you pay your bills (and more importantly, your mortgage) on time, have little or no debt and money in the bank?

The credit crisis is about to make itself known to millions of Americans who otherwise would have felt as though all of that bad financial news was not their concern. Even folks who have pristine credit, the very ones who use at it is supposed to be used and were proud of the lending power (credit limit) these credit issuers gave them. You were a good risk.

Lately though, credit card companies are estimating, or should I say, re-estimating that risk and its worth to their bottom line. Bad loan decisions and the overall tightening credit market has forced many lenders to rethink their generosity and with that, how much money you can borrow. What was previously a five figure credit limit on home equity lines and credit cards has been reduced often by as much as 90%.

What can you do?
In most instances, nothing. If the financial institution you do business with decides that there is overwhelming risk in your ability to pay off balances, even if you have done so faithfully in the past, the credit limit can and in many cases, without warning, be reduced. Primarily, this seems to be targeted towards small business owners who rely on those credit limits for business and travel decisions. But it is finding its way into the average person’s financial lives as well.

If there is so much as a hint of financial stress in your credit score, even if you don’t live in a state with a high degree of foreclosures, you will eventually come under scrutiny. Best thing to do is maintain your credit score. Do this by paying your bills on time and by communicating with your lender. In many instances, they would like to assess their risk and remedy the situation to not only their best interest, but yours as well.

They may lower or waive any fees on the account or renegotiate the terms of the current loan. Do this by threatening to shop around. There are some better risk-situated financial institutions willing to lure business away from competitors.

The last thing you can do is reconsider the project you might be starting around the house. Determining the value of a remodel has gotten more difficult with the best changes coming from structural improvements rather than upgrades to living spaces. Exterior maintenance and things like electrical, insulation, and plumbing will be more worthwhile fix-it projects than a new kitchen or bathroom.

Small businesses might reconsider the need for certain business trips in terms of return on that investment of time. In some cases, the credit companies may be unwittingly making a business decision for you.