The challenge of getting a credit card in retirement

Toowoomba couple Alex and Jennette Wilson* thought they were doing the right thing when they set out to apply for a new credit card earlier this month.

The couple already have one credit card - a card from one of the two institutions they do their banking with. Alex, who is a self-funded retiree, is the primary cardholder while Jennette, who is still working part-time, is the secondary cardholder.

But after attending a presentation by finance expert Noel Whittaker late last year, Alex realised that it might be difficult for Jennette to continue using their existing card if anything was to happen to him.

"Unfortunately Alex has a cancer diagnosis, so we're trying to get our affairs in order. We thought if he passes away, I won't be able to use the card anymore because it's in his name," Jennette says.

"So we had been made aware that it would be easier for me to get a credit card while I am still working - that once I cease work, it'll be almost impossible. And I'm looking at retiring in the next year or so."

As Alex explains, taking out a new card isn't about accumulating points or accessing card perks, it's about ensuring that Jennette has an additional layer of financial security.

"It's just another bit of what I call insurance - to make to make sure that we've got our bridges covered. And that's also one of the reasons why we bank with two different banks."

Credit card application ordeal

Rather than approaching the major bank they have their existing credit card with, the couple decided to set up an appointment with a lending specialist from their other bank - a smaller, regional bank.

The Wilsons have had a relationship with this bank for decades. In fact, Jennette herself has more than $250,000 in terms deposits with them.

What the pair hadn't banked on was just how arduous a process applying for a new card would be.

Though after the initial hour-and-a-half meeting with their loan officer in which Jennette handed over a dossier of financial information, things were looking promising.

The Wilsons were advised that Jennette would have more success applying for a $4000 limit rather than the $5000 she had initially requested, but otherwise, her application looked strong.

A few days later the bank reached out. They needed more details - and not just about Jennette.

"We had to supply them with details of my super, of my tax return. Then they asked Alex questions about his investment property and strata fees, but it's in his name - it's nothing to do with me."

At this stage the application is still being processed, but the Wilsons aren't particularly confident. Jennette suspects that one of the stumbling blocks is around her income.

"I think it's because I divulged to them that I will probably be retiring in the next year or so. I'm 69 and I'm not going to work forever, so I had to say yes, I won't have an income from a job.

"But I've got adequate income from term deposits and we can always go into pension phase on the super which is quite substantial. We're going to have plenty of income.

A common experience

The journey the Wilsons have been on is by no means unique. Money's very own Paul Clitheroe wrote about his own challenge last year when he attempted to apply for a new card with his existing bank.

Chris Grice, chief executive of National Seniors Australia, says that the advocacy group regularly hears from members - who are still working and retired - about their credit card challenges.

"You've got people who struggle to get approval at all, then there are others who find that topping up their credit limit becomes a challenge."

As Grice explains, another issue that can crop up is secondary cardholders who lose access to their cards after the death of their partners. The exact situation the Wilsons were preparing to avoid.

"Imagine a couple in their fifties. Let's say the credit application was done by the primary earner in the relationship. So the card is in their name, but their partner is on there as a secondary card holder.

"Everything is working well, but then something happens to the primary cardholder where they're incapacitated or they pass away.

"Because the credit is not in the secondary cardholders' name - and at this point they might be older and in a retirement phase where they don't have that capacity to demonstrate income from a credit perspective - they could become ineligible."

An issue of income

As Jennette Wilson suspects with her own application, one of the main parts of the challenge for retirees and pre-retirees when it comes to credit cards is the way in which lenders view income.

Income is obviously a key component during any credit application, credit cards included. After all, it's in the best interest of lenders to ensure that their customers can pay back the money they borrow.

That's one part of it. Under responsible lending laws, lenders are obliged to make sure that the credit they offer to customers is affordable and won't end up leading them into financial hardship.

In the case of credit cards, a lender will need to ensure that an applicant can repay their entire credit limit within a three-year period.

To repay that, the applicant may need to demonstrate that they have a regular source of income which, as Grice notes, doesn't necessarily include income generated by assets or from superannuation.

"You might have somebody with superannuation and assets tucked away who might be considered to be moderately wealthy based on what they have on paper.

"But this isn't liquid and they don't have that income on a regular basis. Although some banks will view an account-based pension more favourably - they'll treat it closer to a salary."

How credit cards can be useful in retirement

Grice says that while he understands the position that banks are in to follow the rules, it's little solace for retirees who feel disadvantaged by the rigidity of the system - where even those who are relatively well-off can struggle to access credit.

And though having a credit card may be viewed as a luxury to some, he argues that, in some cases, it's a necessity of modern life.

"Take travel. A lot of businesses no longer accept cash and cheques and in some cases they won't even accept a debit card because they want to take an imprint of a credit card. For example, a hotel or car hire where they want to take a holding amount."

Credit cards can also prove an essential tool for people who stop working and run into what Grice describes as the "greater lumpiness in cash flow" in retirement.

"It's hard for people who have worked and managed their finances based on a certain income to know what the other side will look like in retirement and how they'll need to manage it differently.

"So a credit card can be that financial bridge to manage their cash flow between annuity payments or super draw downs, or to manage things like home insurance or private health insurance payments."

Is it worth applying for a credit card before retiring?

Whether it's applying for an entirely new credit card or adjusting the credit limit on an existing card, Grice says that these are actions worth considering before retirement.

"The most important things you can probably sort out are making a will, making sure you've got enduring power of attorney and an advance care directive.

"But then the fourth thing is having a plan around how you are going to pay for stuff. So thinking about whether a credit card is going to be part of that plan is a pretty important thing to do in advance of retirement."

As the Wilsons have discovered, even a bit of forward planning doesn't necessarily guarantee success or make applying for a card easy though.

Reflecting on their recent experience, both Jennette and Alex admit that they have been surprised by how tough the process has been.

"There are just so many hoops you have to jump through," Jennette says. "And even though we've got a long-term relationship and a substantial amount of money with the bank, they don't seem very willing."

"I know that banks have got obligations around knowing their customers and anti-money laundering stuff, but for a card with a $4000 limit and given our history with the bank, I was surprised," Alex says.

*Not their real names

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