Get smart with your money
People who care about their credit scores tend to obsess about some things they probably shouldn’t, such as the possibility they might have too much credit.
Let’s bust that myth right upfront: The leading credit scoring formulas, FICO and VantageScore, don’t punish people for having too many accounts. And right now, having access to credit could be a lifeline.
In my latest for the Associated Press, find out why it’s not how many cards you have, but how you use them.
Dear Liz: I want to write a letter of explanation to be included on my credit reports to explain a negative posting. How much impact will the letter have on my credit scores?
Answer: Credit scoring formulas can’t read, so letters of explanation won’t help your scores.
You do have a federal right to demand the credit bureaus include your explanation, which is also known as a consumer statement, in your credit reports. Theoretically, the statement could help a lender understand why you have the negative mark — but only if a human being actually examines your credit report and uses the information in evaluating your creditworthiness.
Because lending is largely automated, however, there’s no guarantee your statement will be read, let alone factored into a lending decision. Many of the other details of your credit report are converted to standardized codes used to calculate credit scores, but not consumer statements.
If the negative information in your reports isn’t accurate, you can dispute it with the credit bureaus. If the information is accurate, you can work to offset the effect on your scores.
Paying your credit accounts on time, all the time, will help rebuild credit. So will using less than 10% of your limits on credit cards.
If you don’t have a credit card, consider getting a secured card — where the credit limit typically is equal to the amount you deposit with the issuing bank. Credit builder loans, available at many credit unions, also can help add positive information to your credit reports.
Don’t close accounts, because that could hurt your scores and won’t get rid of any associated negative information.
People with only a few credit accounts also can help their scores by being added as an authorized user to a responsible person’s credit card. The responsible person doesn’t need to grant access to the actual card. Before taking this step, though, ask the credit card issuer whether authorized user information will be imported to your credit reports because issuers’ policies vary.
Dear Liz: I thought your readers would benefit from additional knowledge about Roth conversions. I started converting our IRAs to Roth IRAs when my wife and I turned 60 years old. Years later, I realized that our premiums for Medicare Part B and D were higher because our income in those years exceeded $174,000.
Answer: Triggering Medicare’s income-related monthly adjustment amount (IRMAA) is just one of the potential side effects of a later-in-life Roth conversion.
That’s not to say these conversions are a bad idea.
People with substantial amounts in traditional retirement accounts might benefit from transferring some of that money to Roth IRAs, particularly if the required minimum withdrawals that start at age 72 would push them into a higher tax bracket. They may have a window after they retire, when their tax bracket dips, to convert money and pay the tax bill at a lower rate.
Roths also don’t have the required minimum distributions that apply to other retirement accounts, so people have more control over their future tax bills.
Converting too much, however, can push people into higher tax brackets. Many financial advisors suggest their clients convert just enough to “fill out” their current bracket.
For example, the 12% bracket for married people filing jointly was $19,401 to $78,950 in 2019. A couple with income in the $50,000 range might convert $28,000 or so, because a larger conversion would push them into the 22% tax bracket.
But there are other considerations, as you discovered.
People with modified adjusted incomes above certain levels pay IRMAA adjustments that can add $144.60 to $491.60 each month to their Medicare Part B premiums for doctor visits and $12.20 to $76.40 to their monthly Part D drug coverage premiums. Higher income could reduce or eliminate tax breaks that are subject to income phaseouts, and conversions can subject more of your Social Security benefits to taxation.
At the very least, you should consult a tax pro before any Roth conversions to make sure you understand the ramifications. Ideally, you’d also be talking with a fee-only, fiduciary financial planner to make sure conversions, and your retirement plan in general, make sense.
Today’s top story: How to increase your chances of credit card approval. Also in the news: How to transition from work-at-home novice to pro, why the weak dollar is good for your investments, and why champagne sales have gone flat.
How to Increase Your Chances of Credit Card Approval
Boost your odds by focusing on your credit scores.
Transition From Work-at-Home Novice to Pro
A check-in can help you get productivity, health and balance dialed in for the long run.
Why the Weak Dollar Is Good for Your Investments
The pandemic and low interest rates have weakened the dollar.
Champagne sales flattened by social distancing amid global pandemic
Not much to celebrate.
Today’s top story: How to save on back-to-school shopping amid uncertainty. Also in the news: 5 things to know about gold’s record-breaking run, experts say new investors should quit stock-picking, and how this week’s fed meetings may impact your wallet.
Back-to-School Shopping in 2020: How to Save Amid Uncertainty
Whether your kids are learning in the classroom or living room, here’s how to save on back-to-school shopping.
5 Things to Know About Gold’s Record-Breaking Run
As COVID-19 concerns continue to rattle markets, investors are turning to one of the world’s oldest currencies.
New Investors: Quit Stock-Picking and Do This, Expert Says
Recent market turmoil has new investors chasing company stock picks
How This Week’s Fed Meetings May Impact Your Wallet
Expect interest rates to stay low.
Today’s top story: 6 ways to finance your home improvement project. Also in the news: The dwindling power of Pell Grants to help at-need students, ‘Gamify’ your savings with a prize-linked bank account, and upcoming sales tax holidays.
6 Ways to Finance Your Home Improvement Project
A breakdown of loan options.
Pell Grants: Dwindling Power to Help At-Need Students
The maximum grant now covers less than 60% of expenses.
‘Gamify’ Your Savings With a Prize-Linked Bank Account
Introducing Yotta.
Sales tax holidays are coming up. Here’s where your state stands
More than a dozen states are offering a back-to-school break.