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Why are some retirees being turned down for credit cards?
To successfully apply for a credit card, you need to fulfil its eligibility criteria, and by law, lenders are required to follow Australia’s responsible lending obligations. In other words, before a lender can lend you money, they need to check you can afford the repayments without getting into financial stress.
National Seniors Australia CEO, Chris Grice, told Canstar that older Australians being refused credit is an unintended consequence of the 2018 royal commission into banking and financial misconduct. The “well-intentioned” reforms that followed have made it harder for older Australians to prove their creditworthiness—particularly post-retirement.
“This can result in situations where people are unable to complete transactions that can’t be done with debit cards, such as booking hotel accommodation, hiring cars, and making online purchases.
“The inability for older Australians to access a credit card is especially concerning as we increasingly move towards a cashless society,” said Mr Grice. “Choices can be frightfully limiting if cash isn’t accessible or accepted and paying by credit card isn’t an option.”
Mr Grice also suggested that older people consider applying for a credit card before the ‘crunch time’ in retirement, even if they have no intention of using it:
“Importantly, this is not at all about recommending people get credit and live beyond their means; it’s about forward planning, being approved for credit before it becomes too late and having options if needed.”
There are two main reasons why Australian retirees could be refused credit cards:
Insufficient income
Most banks and lenders will ask for proof of income as part of any credit application, and generally prefer borrowers that earn a regular wage or salary from their job.
Even if you receive a regular age pension and/or draw down money from your superannuation, this may not be enough income to satisfy certain credit cards’ requirements (some rewards credit cards are known for having high minimum income requirements).
Other common retirement income sources, such as returns on savings or investments, or money earned from temporary or part-time work, may not be considered reliable income, as they could fluctuate over time.
No credit score
Some Australians retire to discover they have no credit rating. This makes them unknown credit risks, meaning lenders have no easy way of knowing if they are able to repay a loan. As such, these Australians often pay higher fees or are charged higher interest rates, or have their credit applications denied altogether.
Having no credit score can be a common issue for younger Australians who are just starting their careers, as they may not have yet built up the credit history that credit bureaus generate credit scores from. But how do retirees who have worked hard all their life find themselves without a credit score?
This problem is often (though not exclusively) experienced by retired women whose partners have handled the household finances for most of their lives. After their partner passes on, or following a divorce or separation, these individuals may learn that having never held a loan or utility in their own name, they have no credit score. Using a joint credit card may not count, as only the primary cardholder’s credit score is affected by any spending or repayments, and not any secondary or supplementary cardholders (often spouses and dependent children).
How can you get a credit card in retirement?
If you’re a retiree that wants a credit card in order to easily book a hotel room, buy airline tickets, or make major household purchases, there are strategies you can put in place that can help your credit application: following strategies:
Improve your credit score over time
If you have no credit score, or have a poor credit history, take steps to raise your credit score over time through positive credit behaviour. Putting your home’s power, water, phone or internet plan in your name could give you the start of a credit history, and consistently making repayments on time may help improve your credit score.
Check your credit score for free to get a better idea of how lenders could see you before applying for a credit card or any other loan.
Come out of retirement… partially
If a lender is unlikely to consider your current income sources as part of a credit card application, you could consider seeking out alternative income options that are more acceptable for lenders, but won’t make too much of an impact on your retirement lifestyle. For example, if you currently do some casual or freelance work, you could consider switching to a permanent part-time role. This could give you access to the kind of regular and consistent income a lender prefers, and while leaving you with time available to enjoy your golden years.
Compare credit cards for an option that suits your needs
Every credit card is different, and not every card will be suited to every Australian’s financial situation. Canstar’s tables let you compare multiple credit cards side by side, using filters to narrow down your search to only those that may best suit your needs.
Once you’ve created a shortlist of potential credit card providers, contact them to ask about eligibility criteria, and if they accept retiree applications.
Sometimes getting an entry-level credit card and making the repayments on time can help you to establish and build your credit history. This could help you switch to another credit card with more favourable features, benefits, terms and conditions further down the track.
What alternatives are there to credit cards for retirees?
Depending on your situation and how you want to use a credit card, there may be alternative options available to you. These include:
Debit cards
Modern debit cards with access to credit card payment systems (e.g. Visa, Mastercard) can perform a lot of the same functions that were once exclusively held by credit cards, such as making purchases online or by phone. Of course, this will rely on you holding sufficient cash in your bank account, which could be tricky for some purposes. For example, some hotels will want to put a hold on a certain sum of credit card funds as a pre-authorisation security deposit, which could put a significant hole in your holiday budget.
Accessing super
You may already be drawing down part of your superannuation to supplement or replace your age pension. If you’ve retired and reached your preservation age, you may have the option to withdraw more of your usable super savings if you need them, such as to make a purchase or to secure a hotel deposit.
There may be rules and limits around how much and how often you can access super, and your age pension could potentially also be affected. You may want to consider checking with a financial adviser before making any changes to your arrangements.
Selling assets
Some Australians enter retirement asset-rich but cash-poor. If you own your home, an investment property, shares or other assets, you may be able to sell one or more of these to access cash if required. Be mindful that selling off assets that could earn you returns in the future could affect your finances later on.
Home equity loan
If you own your own home, or even have equity in a property over which you hold a mortgage, you may be able to use part of your property’s value to secure a loan or line of credit. These funds could help you better manage your finances, though you’ll also need to consider a strategy to manage the repayments.
Reverse mortgage
A reverse mortgage is a specialised financial product that lets you access the equity in your home as an income stream, a lump sum, or a line of credit. Unlike most loans, you don’t need to make regular repayments, but instead you pay off the loan if you sell your home or move out, or if the home becomes part of your deceased estate.
Not all lenders offer reverse mortgages, so you may have to shop around to find one that suits. The Australian Government offers their own reverse mortgages in the form of the Home Equity Access Scheme, which may offer more competitive interest rates than commercial lenders.
