Retirees: How to Pick the Best Credit Card

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Yes, you’re retired, but you still need to work on your credit score. If your household debt – mortgage or car loan – is paid off, responsible use of your credit cards will be your best way to keep your scores high.

You might think: Why bother? After all, you plan to never apply for a mortgage again. But you’re still driving a car, aren’t you? Your credit scores impact the auto insurance rate you pay. And a high credit score will get you a favorable rate just in case you need a loan.

And let’s not forget that an excellent credit score will make you eligible for the best credit cards. When you’re no longer actively generating income, you want a card that pays you the best cash-back or travel rewards.

What kind of credit card is the best for your retirement years? Money Talks News founder Stacy Johnson has some tips in the video below. Check it out, then read on for more details.

The type of card you want will be determined by several factors:

  • Your income in retirement.
  • Your lifestyle and planned activities.
  • Whether you’re carrying a balance from month to month.

Income

If you’ve reached the $1 million benchmark for retirement savings, income in retirement should not be a problem for you (unless you’re irresponsible). But for most people, that’s unlikely to happen.

Because of stagnant income, the demise of the traditional pension for most workers, and low savings rates, many are facing retirement with a bare-bones income. The New York Times shared these grim statistics:

According to the Social Security Administration, 23 percent of married couples and 46 percent of single people receive 90 percent or more of their income from Social Security. Furthermore, 53 percent of married couples and 74 percent of unmarried people receive half of their income or more from the program.

The average Social Security benefit last year was about $1,230 a month. Even the top rate from Social Security is modest. This year, the maximum benefit at full retirement age is $2,533. It’s $1,923 if you begin collecting early at age 62, and $3,350 if you put off taking Social Security until age 70. (Want to increase the amount of Social Security you’re entitled to? Check out this post.)

If you have saved for retirement, you’ll need some idea of how much income those savings will generate over the years. Check some online calculators, like those at AARP and CNNMoneyCBS MoneyWatch wrote about another online tool — the CoRI Retirement Index from BlackRock. “The index is intended to approximate the retirement income you’d receive if you invested conservatively from your current age until retirement at age 65, and then bought an inflation-adjusted immediate annuity to generate retirement income,” MoneyWatch explains.

What kind of credit card is best for you if you’re facing a reduced income? A card that will work for you, earning you money on expenditures that are unavoidable. Look for a card with:

  • No annual fee.
  • Generous cash back on basics like gas and groceries. Unfortunately, many rewards cards come with an annul fee, but the rewards may be generous enough to make the card worthwhile.
  • A card with easily understood terms. Perhaps it’s best to avoid a card with frequently changing cash-back bonuses that you have to keep track of and register for.

Your lifestyle and planned activities

What if you’re a retiree with a healthy nest egg and exciting plans? Many retirees look forward to extensive travel. In that case, they should shop for a card with:

  • No foreign transaction fee. Many cards have a foreign transaction fee of 2 percent or 3 percent, which will unnecessarily increase the cost of overseas purchases.
  • Generous travel rewards of airline miles and hotel stays.
  • Generous bonus miles for initial purchases with the card.
  • If driving will be your primary mode of transportation — perhaps you’re embarking on a national tour in your RV — look for a card that offers the best perks on gasoline purchases.
  • Once again, get a card with understandable terms and conditions. Rewards programs are confusing to many consumers, a new survey by J.D. Power found. Reports the Los Angeles Times about that study, “Customer understanding about how to earn and redeem rewards has dropped, with only 59 percent of customers saying they ‘completely’ understand how it works, down from 66 percent last year.” Still perplexed even after reading the card’s paperwork? I called the customer service number of my travel rewards card and got a simple and complete explanation.

If you carry a balance

A growing number of retirees are carrying a balance from month to month. That’s not good. You’ll want to retire that debt as quickly as possible. So, you’ll want to look for a card that:

  • Offers a generous balance transfer deal. Some offer as many as 18 months with 0 percent interest. Have a plan to pay the balance off before the introductory rate expires.
  • Has a zero or low balance transfer fee. There’s even a card that offers you cash for transferring a balance.
  • Has a low interest rate after the initial 0 percent rate expires. You’ll want the promise of a low rate just in case you slip up and carry a balance again.

How do you find a card? We have a credit card search tool right here. We also have reviews of many credit cards, although be aware that offers can change. Check with the card company before you submit an application.

Also, you’ll likely find better deals if you search online, rather than responding to credit card offers made by phone or mail. (And if that ubiquitous Rachel from “Cardholder Services” gives you a robocall, hang up.)

How to build your credit score

You build your credit score the same way you would if you were still reporting to work each day:

  • Pay your credit card bill before the due date each and every month.
  • Keep your charges below 30 percent of your credit limit and ideally no more than 10 percent.
  • Keep your oldest credit card account open. For instance, I use my travel rewards card for the bulk of my credit card purchases, but I have a monthly service fee charged to my oldest card just to keep it active.
  • Check your account routinely for charges you didn’t make, and get a free credit report every four months from AnnualCreditReport.com to make sure you haven’t been the victim of identity theft or fraud. You’re entitled to one free report from each of the three major credit bureaus every year, and that’s the website to get them from.

While those who calculate credit scores don’t really care if you carry a balance from month to month, you should avoid wasting your precious money on credit card interest. Charge no more than you can afford to pay off comfortably each month. That’s the responsible thing to do.

There are retirees who have no intention of paying off their credit card debt. CNBC reported back in 2010: “Nearly 40 percent of retired Americans said they’ve accumulated credit card debt in their twilight years — and aren’t worried about paying it off in their lifetime, according to a survey released by CESI Debt Solutions.”

That debt won’t die when they do. It will come out of their estate, possibly leaving too little to pay for a funeral. That puts an unfair burden on the survivors.

Are you managing your credit cards responsibly in retirement? Tell us on our Facebook page.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Al S.

    Stagnate income, thanks to the government and their “let’s save all the big pigs at the top of the ladder” attitude. Where is my free government money? I can’t even get 1% on my savings now, but HEY! Wall Street is doing great. As long as the government keeps interest rate artificially low, seniors have no extra to spend, and the economy still plummets as we are one of the largest purchasing groups.