Ask Liz Weston

Get smart with your money

Credit Cards

Q&A: How to kick your ex off the credit cards

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Dear Liz: My divorce was final in 2016. My ex and I divided our credit cards as part of the settlement. I have several joint credit cards with high credit limits and zero balances. I have used them once a year to keep them in active status. Do I consider canceling them or do I risk lowering my credit score if I do?

Answer: If these truly are joint credit cards, then your ex potentially could run up a balance and default, damaging your credit. Obviously, that’s not ideal. With joint cards, neither party can be removed by the other, so the best option may be shutting down the account.

But joint credit cards are increasingly rare. Most cards used by couples have a primary cardholder and an authorized user. The authorized user is not responsible for paying the bill and can be removed at any time.

Contact the issuers to find out your status on each card: Are you a joint account holder? Primary or authorized user?

If you’re the primary holder on a card and your ex is still an authorized user, ask that your ex be removed. If the account truly is joint or if you’re the authorized user, consider opening one or two cards in your own name before taking any further action.

Your credit scores may still take a hit when you close accounts or get removed as an authorized user, but the additional lines of credit may limit the damage and ensure you still have access to credit.

Q&A: Why home equity loans are a better option than credit cards

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Dear Liz: My husband is 68, I am 70, both of us are retired and on Social Security. We have little in savings. My husband wants to charge $10,000 to a low-interest credit card to pay for a new furnace and water heater. He plans to pay the minimum each month and at the end of each year transfer the balance to a different credit card with low interest. Is this a good idea?

Answer: You may have better options.

Many credit cards offer low introductory rates that expire after 12 to 21 months, but you typically won’t know before you apply what your credit limit will be.

You may not get a high enough limit to make all your purchases or you could use up so much of the limit that it causes damage to your credit scores. (Scoring formulas are sensitive to how much of your available credit you’re using, and ideally you wouldn’t use more than about 10% to 30% of your credit limits at any given time.) When you apply to transfer your balance to another low-rate card, you’ll run similar risks.

A home equity line of credit or home equity loan might be a better choice. HELOCs have variable rates, but you would have a source of funds you can tap and repay as needed (much like a credit card, but backed by the equity in your home). Home equity loans typically have fixed terms and rates, so you can borrow what you need and pay off the debt over time (often 15 to 20 years).

If paying back the money would be a hardship, a reverse mortgage might be an option. Reverse mortgages can be complicated and expensive, however, so talk to a housing counselor approved by the Department of Housing and Urban Development before proceeding with one.

Tuesday’s need-to-know money news

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Today’s top story: Disability and Credit Access: why scores are key in a crisis. Also in the news: 4 features to look for in the best credit cards of 2022, considering the suburbs, and is trading employee equity a good idea?

Disability and Credit Access: Why Scores Are Key in a Crisis
Having good credit can help you get low-interest loans or credit cards to help you cover your bills in an emergency. Here’s how to get started.

Best Credit Cards of 2022: 4 Features to Look For
Credit card issuers are offering more choice and flexibility as they add features to new cards.

Can’t Buy the House You Want? Consider Moving Out of the City
Suburban and small-town living has its perks, including more spacious and affordable choices for first-time home buyers.

Is Trading Employee Equity a Good Idea?
Buying or selling employee equity has become easier and more accessible, but is it right for your portfolio?

Q&A: Why you need a credit score even if you don’t like debt

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Dear Liz: As I counsel my teenage kids about their personal finances, I am wondering if they can live without a credit score. It is puzzling that to get a good credit score, you need to have debt, or at least a credit card. Wouldn’t living debt free be best? With FICO scores becoming de rigueur, is it reasonable for anyone to get away with no credit score at all, especially if the only debt they would consider is a mortgage someday? Also, the credit reporting companies now have some adjunct services that provide reporting based on payments for rent and utilities that might be helpful. How effective are those reports?

Answer: Credit scores aren’t meant to gauge how well you manage money. They’re meant to gauge how well you handle credit. If you don’t have and use credit, you won’t have scores, and lenders will be reluctant to extend you credit when you want or need it.

You also may have to pay higher deposits for utilities, miss out on the best cellphone deals and have trouble renting an apartment. In most states, credit information helps determine property insurance premiums as well. In fact, your credit may matter more than your driving record in determining auto insurance premiums.

It’s a myth that you must be in debt to have good credit scores. You just need to have and lightly use a credit card, and you should pay it in full every month. Another option is a credit builder loan, through which the money you borrow is placed in a savings account or certificate of deposit for you to claim when you’ve finished making 12 monthly payments.

There are services that will add rent and utility payments to your credit reports. The most commonly used versions of the FICO score, however, don’t include that information in calculating scores.

Friday’s need-to-know money news

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Today’s top story: AARP credit card holders endure bumpy move to Barclays from Chase. Also in the news: 5 steps to level up your side hustle, how much it really costs to drive a new car, and one couple’s journey to tame their debt.

AARP Credit Card Holders Endure Bumpy Move to Barclays From Chase
Barclays apologizes for long call hold times, card transition woes. Issuer beefs up call support.

5 Steps to Level Up Your Side Hustle
Growing your side gig into a legit business requires research, planning and organization.

How Much Does It Really Cost to Drive a New Car?
A 5% increase in car ownership costs means your budget should include more than the monthly payment.

How I Ditched Debt: Pandemic After Payoff Tests Couple’s Resilience
One couple’s journey to tame their debt.

Q&A: How a card switch affects your credit score

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Dear Liz: I have one American Express card and two Visa cards, all of which I have held for many years. I received notice that my American Express card was being converted to a Visa card. I do not want a third Visa card but have no choice. For credit score purposes, will this conversion appear to be a closing of my old card and an application for a new one? Obviously, closing a long-held credit card and applying for a new one will affect my excellent credit score, which is 830. If I decided to apply for a new American Express card, how would that impact my score?

Answer: Conversions from one issuer to another can have a temporary negative impact on your credit scores as one account is closed and another opened. The effect should be minor as long as you have other open, active accounts.

Within a month or two, the new account should show the same history as the old one, and your scores should recover. (You have more than one credit score, by the way, and your scores change all the time. As long as they’re generally above 760 or so, you should get lenders’ best rates and terms.)

The type of card usually matters less than the benefits associated with the card. If those benefits are useful to you and are enough to offset any annual fee, consider keeping the card. Its long history and credit limit are likely helping your scores.

That doesn’t mean you have to keep a card you really don’t want. The fewer cards you have, though, the more careful you probably need to be about closing one.

You can still add an American Express or other card to your portfolio. Adding a new card typically dings your scores less than five points. The effect is temporary, and the new account could contribute positively to your scores over time.