Get smart with your money
Today’s top story: Should you get an FSA? Also in the news: The best times of the year to buy a used car, saving enough for retirement, and the states with the highest rate of identity theft.
Should I Get an FSA?
The pros and cons of a healthcare spending account.
The best times of the year to buy a used car
Buying strategically.
Saved enough for retirement? Not many have
The golden years could be stressful.
The States With the Highest Rate of Identity Theft
Is yours on the list?
Dear Liz: I’ve been using a free credit site to learn more about credit reports and credit scores. Recently I looked around and found reviews about how “horribly inaccurate” these free scores are. Where can I go to find my real FICO credit scores? I need the ones that matter, the ones that lenders use.
Answer: Some free scores aren’t used by any lenders. But many sites these days give out VantageScores, a FICO rival that’s being used in a growing number of credit decisions. So VantageScores are “real” scores, just not the most commonly used scores.
Here’s the thing, though: You generally can’t predict which scores a lender will use. Not only are there different name brands, but FICO offers versions customized for certain types of lending. The scores typically used by credit card issuers are different from the ones used by auto lenders, for example. These industry-specific FICO scores are on a 250-to-900 scale, rather than the 300-to-850 scale used by other FICO scores.
There are also different generations of each type of score, much like the different operating systems for your computer. Some lenders quickly upgrade to the latest version, just as some computer users upgraded to Windows 10 when it came out. Others use older versions of the scores, just as users may cling to Vista or XP. (For you Mac users, that would be something like hanging on to Mountain Lion or Snow Leopard instead of updating to El Capitan.)
Mortgage lenders, in particular, use relatively old versions of FICO. That’s because the agencies that buy most home loans, Fannie Mae and Freddie Mac, haven’t updated their requirements so that lenders can use newer versions.
Some credit card companies offer their customers free FICO scores, typically from one bureau. You can get a glimpse of the array of scores lenders might use by buying the most commonly used FICO, the FICO 8, for about $20 each from MyFico.com. Along with each FICO 8 you buy (you can buy three, one from each of the three major credit bureaus), you’ll get additional versions used for auto, credit card and mortgage lending.
If you’re going to be in the market for a major loan, such as a car loan or a mortgage, it makes sense to buy your FICOs so you can get a better idea of how lenders might view you. If you’re just interested in tracking your scores generally, though, the free versions can be perfectly adequate.
Dear Liz: Here is another take on your response to the reader who questioned whether retirement calculators were a hoax that promoted excessive savings rates. You mentioned that current retirees had enough pensions, Social Security and savings to replace nearly 100% of their working income, while younger people likely would have only enough to replace 50%. You closed your advice by asking if the letter writer would be comfortable living on 50% of that person’s income. For a non-saver, that is a fair question. But for a saver, it isn’t an accurate comparison.
If one is presently saving, say, 10%, then that person is already living on 90% of current income. If saving 15%, then that person is already living on 85%. When you analyze the expected impact of having the compounded savings at retirement, the true “step down” in income is really the difference between the current 90% or 85% figure and what you will have with Social Security, part-time job income, pension (if you work for the government) and savings. The gap becomes much more manageable, because you already are used to living on 10% to 15% less than your current income.
The point? Savers are already accustomed to living on less — in some cases, significantly less — than current income. Between the already lowered current disposable income and the benefit from the accumulated savings and investments, the “step down” gap is made manageable. Saving helps on both ends.
Answer: That’s an excellent point. Taxes are another factor to consider. Working people pay nearly 8% of their wages in Social Security and Medicare taxes, an expense that disappears when work ends. Income tax brackets often drop in retirement as well.
Still, there are good reasons to shoot for a higher replacement rate than you think you may need. Investment markets don’t always cooperate and give you the returns you expect. Inflation can kick up and erode the value of what you’ve saved. Careers can be disrupted, leading to lower wages or an earlier retirement than you planned. People who have “oversaved” will be in a better position to deal with these setbacks than those who save only enough to scrape by.
Today’s top story: Why more banks are turning to biometrics for security. Also in the news: How natural disasters can hurt your finances, how to get your late credit card payment waived, and 10 things that will cost you less this summer.
More Banks Turn to Biometrics to Keep an Eye on Security
Your eyes could hold the literal key to your account.
5 Surprising Ways Natural Disasters Can Hurt Your Finances
Incidentals alone can add up quickly.
How to get your late credit card payment waived
It can’t hurt to ask.
10 Things That Will Be Cheaper During the Summer of 2016
Where you can expect to save some cash.
Today’s top story: How much should you save for retirement? Also in the news: Tips for buying a home if you have student loans, what to expect from bankruptcy counseling, and how men and women retire differently.
How Much Should You Save for Retirement?
Establishing guidelines.
5 Tips For Buying A Home If You Have Student Loans
Navigating a mortgage and loans.
Bankruptcy Counseling: What It Is, What to Expect
Making difficult decisions.
How (and Why) Men and Women Retire Differently
Taking risks.
Today’s top story: What you need to know about the new overtime pay rule. Also in the news: Using a personal loan to pay for your wedding, the most aggravating things about your cable bill, and how Fanny Mae is making things easier for first-time home buyers.
Overtime pay: What you need to know about the new rule
An additional 4.2 million salaried workers are now eligible for overtime pay.
Something Borrowed: Using a Personal Loan to Pay for a Wedding
Financing your big day.
Here Are the 3 Most Aggravating Things About Your Cable TV Bill
Piles of extra fees.
First-Time Homebuyer or No Credit History? Fannie Mae Update May Help
Making the process easier.