If you’re about to retire or otherwise leave your job, there’s something you need to consider: Applying for a new credit card or mortgage.
Sound like odd advice?
Years ago, I quit my job as a stockbroker. I wasn’t in a hurry to hunt for a new career: I had plenty of money in the bank.
One of the first things I wanted to do after leaving my job was get my financial ducks in a row. That included reducing my living expenses by refinancing my mortgage to get a lower rate.
But when I applied for a new mortgage, I was shocked to learn I didn’t qualify for a refinance. Why? Because I no longer had an income.
It seemed ridiculous: I had several hundred thousand dollars in the bank, The house was worth more than $150,000, and the mortgage was less than $50 thousand. In addition, that lower mortgage rates would have made my payments lower, thus making them easier to make, thus lowering the lender’s default risk. I win, the lender wins. In what world would I not qualify?
As it turns out, this world. I’ll never forget what the loan officer told me:
“You could go to Las Vegas tomorrow and lose all your savings. That’s why mortgage, credit card and every other type of lender makes loans based primarily on your income, not your savings.”
Why Getting financial products is tougher after leaving work
Credit card companies have recently increased their income requirements to qualify for a new card and they’ll likely only rise in the years ahead.
Unlike getting a mortgage, credit card companies don’t ask for proof of income, ultimately taking you at your word. But they’ll use an algorithm based on your recent spending when determining credit limits. So if your spending is low, your credit limit will also be low.
One exception to this rule is a secured credit card. Those are linked to a savings account, hence the word “secured.” But your credit limit will be based on what’s in the account tied to the card.
Bottom line? Unless you’re willing to lie on a credit card application, you’ll likely have trouble getting a high limit on an unsecured credit card with low or no income.
And as I mentioned above, with a mortgage, it’s even harder – if not impossible – to qualify without proof of income.
This is why it’s important to think ahead and get a credit card and/or refinance your mortgage before you leave your job. Once you’re in retirement or no longer working, you may have a lot of money in the bank, but it won’t matter.
What You Should Do Before Quitting
Before you leave the workforce, have at least two credit cards, and at least one offering cash back.
Having more than that is okay, but re-familiarize yourself with your credit lines, especially with the cards you use the most.
If a travel rewards card or a card with a lucrative bonus interests you, get it before leaving your job.
And double-check your mortgage(s) too.
If there’s a chance you’ll need to refinance your mortgage because it has a high interest rate, refinance it before clocking out for the last time.
Now you know!
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