Ask Liz Weston

Get smart with your money

Credit Cards

Q&A: Can I simplify my finances without hurting my credit score?

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Dear Liz: I’m 75 and getting forgetful and disorganized. My prior excellent credit rating has suffered due to late payments because of this. I’d like to simplify my finances by getting rid of extra credit cards, but this will negatively affect my rating even more. Why isn’t there some means for elders to simplify their finances without negative consequences? Some may ask why I care about my credit rating at my age. Well, if there was a major quake and I needed to borrow money to rebuild my condo, it would be important.

Answer: It’s not always possible or even desirable to maintain the highest possible credit scores. Sometimes, other factors must take precedence.

In your case, the most important consideration is making your finances more manageable. You’re correct that cancelling cards could further damage your credit scores, but the impact should be temporary as long as you responsibly handle the cards you keep.

Consider hanging on to one or two cards with the highest credit limits. Credit utilization, or the amount of your available credit that you’re using, is a big factor in credit scores so you’ll want to keep high credit limits if you can. If you’re closing other cards with the same issuer, ask that your credit limit from the closed cards be transferred to the card you’re keeping.

Also, set up automatic payments so that you never again miss a payment. You typically can set up automatic payments to cover the minimum balance, the statement balance or a fixed dollar amount. You can do this online or with a phone call to the issuer.

You should have a document known as a power of attorney that designates someone to handle your finances should you become incapacitated. You’d be smart to start involving that person now so that they’re familiar with what needs to be paid and when. This person could help make sure you’re keeping up with your financial tasks and could take over if you’re feeling overwhelmed.

If you don’t have such a person in your life, please investigate your options. An estate planning attorney or tax pro might have some recommendations, or you can check out the services of a daily money manager. You can learn more at the American Association of Daily Money Managers.

Q&A: Don’t be overly fearful about closing credit cards

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Dear Liz: You recently advised a couple who have excellent credit, no outstanding loans and a low credit utilization rate that they could close their credit card with a company that keeps reducing their credit limit when they don’t spend enough on their card. The writer has to contact the credit card company every time to get it restored to its original credit card limit. You suggested they could close their account but you didn’t address their question about whether they’d be better off settling for a reduced credit limit. Wouldn’t a reduced credit limit harm one’s credit scores less than closing an account?

Answer: Probably, but the point was that closing the account was unlikely to do significant or lasting harm as long as they had other credit cards. The couple could make the effort to try to keep the account open, but the hassle might not be worth the limited benefit to their credit scores.

People with excellent credit are often overly fearful about closing credit cards. It’s true that you generally should avoid closing accounts if your scores aren’t great or if you’re in the market for a major loan, such as a mortgage. It’s also a good idea to keep a big gap between the amount of credit you use (your balance) and the amount you have (your credit limit). That could mean hanging on to your highest-limit cards or having the credit limit of a card you’re closing transferred to another card you’re keeping.

But you shouldn’t be afraid of closing accounts if you have a good reason to do so.

Q&A: Will canceling a card permanently hurt my credit scores?

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Dear Liz: My wife and I have excellent credit, pay our credit cards in full each month before the due date, and have no outstanding loans or debts. Our credit utilization is low, about 3-4%. Our total available credit is about $125,000 for six cards.

One credit company keeps reducing our credit line every time they think we aren’t using their card enough. They want us to “spend more,” but haven’t defined how much to spend per month. It’s becoming stressful having to contact this company every time to get our credit line restored to the full amount and our credit scores back up by about 10 points.

If we close this account, which is not our oldest card, do we risk our score dropping significantly and permanently? Would we be better off settling for a lower credit limit? If we do either, would it trigger alerts to other cards we use to do the same? The other cards have better benefits so we use those more.

Answer: There is nothing permanent about credit scores. They change constantly, and the minor damage you do by closing a card can be swiftly repaired as long as you have other cards that you use consistently and responsibly.

If there are months where you don’t use the card at all, you could consider adding a small recurring charge or two so the account shows some activity. You could also ask for a “product change” to a card with better benefits that you’re likely to use more often.

Or you could just figure that this company isn’t interested enough in your business to be worth the bother. When you call to cancel the account, make sure to tell them exactly why.

A dramatic drop in your credit scores could cause other issuers to review your accounts, but your scores are too good, and the impact of one closure is too slight for you to worry about that.

Q&A: Coping when dementia causes reckless spending

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Dear Liz: Our son-in-law has been diagnosed with early Alzheimer’s disease and sometimes makes reckless purchases. Our daughter has appealed to their bank to close their account or cancel his credit and debit cards. They refuse because the accounts are in his name. What can she do?

Answer: What your daughter can do may depend on how advanced his Alzheimer’s is, says Carolyn McClanahan, a physician and fee-only financial planner in Jacksonville, Fla.

If your son-in-law has enough capacity to understand the situation, McClanahan suggests the couple go to his doctor and have the doctor explain why it is important for the wife to manage the finances going forward. If your son-in-law agrees, a power of attorney document can be created giving your daughter the legal power to manage their finances.

They should visit an elder law attorney to help her with the situation, McClanahan says. If the bank balks at accepting the power of attorney, as banks sometimes do, she can have the attorney send it a strongly-worded letter to force them to honor the document, McClanahan says. Having this kind of backup is an important reason why people should use an attorney to draft these documents, rather than using a form or software, she notes.

Even if your son-in-law lacks capacity, as a joint account holder your daughter should be able to withdraw all the money in the bank account to protect it. She also can cut up the credit and debit cards.

If all else fails, she can go to court to be appointed his conservator, but that option is an expensive and intrusive one, McClanahan warns. Involving an elder law attorney as early as possible may help her avoid court intervention.

It bears repeating that every adult, no matter their age, should have powers of attorney that appoint someone else to make financial and health care decisions for them in case of incapacity. Trying to get these documents in place after a tragedy strikes can be difficult, if not impossible. Get them drafted now, while there is still time to avoid unnecessary hassle, stress and expense.

Q&A: Your credit card was unfairly canceled? Here’s how to fight back

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Dear Liz: For decades I owned two credit cards that earned airline miles with all my expenditures. I always paid the bills in full on time and never missed a payment. Earlier this year, I mailed in checks to cover the balance as I always do. But then I noticed the checks had not cleared my account after three weeks. I assumed the payment was lost in the mail, so I stopped payment on the checks and paid the amount I owed in full online. But then the checks came through to the bank. Since the checks had been stopped, they were returned, and even though I had paid my bill in full, both of my cards were canceled.

I called the customer service number several times and spoke to supervisors and they all said I had a great case, but then I received letters back rejecting my requests to get my cards restored. I tried to apply for a new card and that too was rejected. My credit rating is very high, and this seems very unfair to me as a longtime loyal customer. I have other credit cards but these were the most important to me for the accumulation of miles as I travel a lot. Is there anything that can be done to reverse the decision?

Answer: You need to attract the attention of a human being with the power to override this credit card issuer’s automated systems and that’s no easy task.

You did the right thing by calling the customer service number several times, since phone reps can vary considerably in their ability to solve problems. You might have to cycle through several reps before you find one with enough savvy, training and interest to actually help you.

Since you washed out with the phone reps, your next step should be contacting the office of the bank’s chief executive. That may just earn you a form letter, or you may catch the attention of someone who realizes how unfair the cancellations were and who is motivated to help.

In the past, a complaint to the Consumer Financial Protection Bureau often prodded banks and other companies to do the right thing by their customers. The current administration’s attempts to kill the bureau are being challenged in court, and the agency is currently accepting complaints again, but it’s unclear how much help you can expect to get.

Even if you can’t get the bank to reconsider, you should resolve to stop sending checks through the mail. Mail theft and check fraud are soaring, while electronic payments continue to be a safer and more secure way to pay.

Also, you don’t have to give up accumulating miles for your favorite airline. Other credit card issuers offer general travel rewards that allow you to transfer miles to airlines (and hotels and other travel providers). While airline-branded cards can help you earn elite status and come with other perks, general travel rewards cards offer the flexibility to book with a number of different carriers.