Retired, financially comfortable and still knocked back for a credit card? It’s just not right

Being debt free should make it easier to get credit, but it is challenging for retirees.

The banking system appears to have a problem with retirees. Even after decades of loyalty to a bank, older Australians face discrimination when it comes to obtaining credit products such as credit cards and loans.

Although there are ways for retirees to beat the system, it should not be this way.

For the younger generation, anyone with a job will find it relatively straightforward to obtain a credit card. But if you are retired and derive your income from your superannuation account or other forms of passive income such as an investment property, getting approved for a credit card may seem like mission impossible.

In most cases, retirees do not require credit cards because they are short on cash. They use them for the convenience while travelling abroad or to reduce the need to hold large amounts of cash unproductively via a debit card. Other reasons retirees enjoy credit cards include access to the linked card benefits such as complimentary travel insurance and gaining points on the rewards program.

A spokesman for the Australian Banking Association says: “Banks assess an applicant’s income, expenses and the ability to repay. The ABA advises self-funded retirees who find their requests for credit are denied to follow up with the institution to provide further proof of their financial status, or to shop around.”

The ABA also says that banks are required to comply with the National Credit Act, whereby credit card providers need to assess an applicant’s ability to repay the credit limit on the card within a three-year period.

Unemployed people can no longer rack up thousands of dollars in credit card debt then increase their credit limit.

This then begs the question as to why a self-funded retiree with $1m in their super fund would be declined for a $5000 credit card that they could pay off 200 times over. It appears that most banks dismiss passive income as a legitimate source of income and only take employment income into account.

That does not sound fair, right? Well the Australian Human Rights Commission would agree. On its website it says: “The Age Discrimination Act 2004 makes it unlawful to discriminate against people on the basis of age in the provision of goods and services, such as banking and insurance services.”

So why are banks being so strict? It appears that post the banking royal commission they have taken a much stricter approach to offering credit after pressure from the government to change their ways. Gone are the days where unemployed people are able to rack up thousands of dollars in credit card debt and then be approved for higher credit limits after they max out their card – which is a good thing.

But retirees are a casualty of the stricter rules. Banks happily accept your business while you are working and collect tens of thousands of dollars in interest throughout the term of your home loan. But after you retire, they turn their backs on you for credit products.

If you still want a credit card in retirement, here are some tips and tricks:

The first is to retain your credit card before you retire. Do not cancel it while you are working, thinking that you can simply apply for another credit card in retirement; you are unlikely to ever get one again.

That said, there are still some banks which will give retirees credit cards but you need to be clear that although your employment income is zero, you still have a stable, repeatable passive income from your superannuation fund and other investment sources.

An alternative is to switch to a debit card or to keep your home loan open with a $1 balance and use the linked redraw like a quasi credit card for emergency purposes when larger amounts of money are required on short notice.

It seems crazy but I have even heard of stories where retirees, as a last resort, have asked their adult children to take out credit cards for them as they have been treated by the banks as a sort of a financial outsider and could not get a credit card approved themselves.

You would think having no debt and a good amount of funds in savings would make it a breeze to get a credit card in retirement, but it is likely to be an ongoing challenge given the stricter credit policies of the banks at the insistence of the government following the banking royal commission.

James Gerrard is principal and director of Sydney financial planning firm financialadvisor.com.au