Dear Liz: My husband has a lower credit score than me. Every month he gives me a check from my personal checking account which I deposit into our family account so I can pay my credit cards. He believes he has to pay some tickets directly to fix the score. He likes to send checks by mail, in the old-fashioned way (which drives me crazy!). Do you think this practice will improve his result?
Answer: The short answer is no. Loan scoring formulas do not care who pays the bills, as long as the bills are paid on time.
Perhaps an explanation of some of the basics for credit scoring would help.
People do not have a single credit score. They have a lot of them, because many different scoring formulas are used.
The credit score most commonly used at the moment is FICO 8. There are many other versions of the FICO scoring formula, including some that are tailored to different industries, such as credit cards and car loans. In addition, there are VantageScores, a rival formula created by three major credit bureaus: Equifax, Experian and TransUnion.
Credit ratings are based on information in your credit reports in those bureaus, which are private companies that don’t usually share information. Because information may vary from office to office, your credit scores may also vary from one institution to another.
There is no joint credit report or joint credit score, so couples will usually have different points even if they have some joint accounts. How long a person has a loan, how many credit accounts he has and the combination of loan types can be different, resulting in different results.
Your spouse may have lower scores than yours at the moment, but that in itself is not a problem that needs to be fixed. If his scores are generally above 760 on a typical scale of 300 to 850, he will get the best rate and terms when applying for a loan.
If his points need to improve, he should start checking his credit reports from each of the three offices in www.anniversarycreditreport.com. (Although these reports used to be free only once a year, you can now get them for free every week until April 2022.) You should dispute any inaccurate information, such as accounts that are not his or accounts showing missed payments if all payments were made on time.
They may be able to improve their results by reducing the amount of their available credit they use or by adding an account or two. Opening an account can temporarily reduce its results, but usually a new account will add points over time if used responsibly.
And try to persuade him to stop sending checks by mail. A check that goes astray can result in a missed payment that can deduct 100 points or more from points. Electronic payments are far safer and more efficient.
Why you might want a Roth IRA
Dear Liz: I never understood Roth IRAs. They do not offer a tax credit for contributions, so they cause you to pay taxes on your money while working in the higher tax bracket. See the article : Grayscale® Digital Large Cap Fund Announces Rebalancing of Fund. With a regular IRA, you get a tax credit in advance when you’re in the higher tax bracket, and then you pay withdrawal tax when you’re retired and in the lower tax bracket. What am I missing?
Answer: Not everyone will be in the lower tax class in retirement. Some will be in the same or higher brackets when it comes time to raise money. For example, people in their twenties may be in the lowest tax bracket they will ever see. People who expect tax rates to generally rise may also want to secure their bets if they have at least some money in Roth.
Roth can also make more sense if you don’t get tax relief for your contributions to the IRA. This can be the case if you have access to a work plan and your income is above certain limits or if your income is so low that you owe little or no income tax.
Roth IRAs have several other advantages. Having a pot of non-taxable money in retirement can give you some flexibility in managing your tax account. For example, if a big bill comes up, withdrawing from your IRA could push you into a higher tax bracket, and giving up your Roth wouldn’t.
Roths also don’t require you to withdraw money in retirement, unlike regular IRAs. You can keep the money until you need it, perhaps to pay late expenses, such as long-term care, or you can pass it on to your heirs.
Roths are more flexible in another way: you can always withdraw the amount you have contributed to Roth without tax consequences. Withdrawals from the IRA before retirement usually carry taxes and penalties.
Liz Weston, a certified financial planner, is a columnist for personal finance NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, no. 238, Studio City, CA 91604, or using the “Contact” form at asklizweston.com.
