Is it a Good Idea to Close Credit Cards I don't Use?

by Rebecca Eve Selkowe, J.D

3 myths about your credit score:

I never really talked much about credit scores before, but that is starting to change now as I’m realizing how much unnecessary worry, concern, and confusion swirls around them.

So first things first. Your credit score is one credit bureau’s opinion of how likely you are to be able to repay the money you borrow.

Annnd… we’re done here!

[drops mic.]

Heh.

Of course, there’s a lot more to it than that – what factors go into it, what it means, how to have a good one – and based on what I hear from my very smart, very educated clients, a lot of mystery, too!  Here are the top three myths about your credit score, debunked.

Myth #1: If I never use my credit card, I’ll have good credit. WRONG. Your credit score is based on large part on how good you are with credit.  If you don’t actually use credit, no one will know if you’re good at it.  So if you don’t use a credit card, you won’t have bad credit, but your score definitely won’t be as high as it could (and, if you’re financially responsible enough to respect credit cards enough to fear them, as high as it should) probably be.

Myth #2: I should close any credit cards I don’t use. I hear this all the time. I scream “NOOOOOOOOOOOO!!!!!!” and start lifting things up and smashing them.  Okay I don’t really do this… but I want to.  Unlike in, ahem, other areas of our lives, when it comes to your credit score, size matters! Your score is based on part on how much credit you have available to you AND on the length of your credit history (how long you’ve been using a particular account). Closing cards reduces the amount of credit you have.  Closing your oldest card shortens your credit history.  New accounts, bad.  Old accounts, good.  HULK SMASH!

Myth #3: My credit score is the same as my credit report.  NOPE.  Your score is BASED on your report.  You can get your credit report for free each year, but it will not include your credit score.  You definitely want to make sure you’re on top of that report to make sure everything in it is accurate.  You can get your score for free, too, but you may have to do some finagling.  Your score is useful, but the report is even more useful.

There you go. Three myths about your credit score. Pop quiz next week! :)

If you have your head buried in the sand about YOUR credit score, it’s time to get it out. Good, bad, ugly, you have to know that number.  You may be surprised, you may be devastated, but you know that saying “start where you are?”  That’s you and your credit score.

So go check it.

Did these surprise you? Did you know these already? Are you all, tell me something I don’t know? What other questions did this raise for you?

Should I be zeroing out my credit card every month?

by Rebecca Eve Selkowe, J.D

The best way to use your credit card is to pay the balance in full every month – that way, you don’t have credit card debt and you don’t pay interest. However, if you are using your credit card all the time, the balance will never be $0.

(It’s very confusing.)

Credit cards work on a “statement cycle” and a “grace period.” The easiest way to understand what this means is to use an example. Let’s say your Visa bill is due on the 20th of every month, and your statement cycle ends on the 23rd. Let’s say it’s February. How do you know what to pay this month?

Everything you charged from December 24 to January 23 (and anything you hadn’t completely paid off up to that point) makes up your January statement balance. That January statement balance will be due on or before February 20. If you pay the entire January statement balance sometime between January 23 and February 20, you won’t pay any interest. WOO HOO!

BUT! If you used the card in February, you’re still going to see a balance on the card when you pay it on the 20th. Not to fear… on February 23 that statement cycle will close and everything you charged from January 24 to February 23 will be due on or before March 20!

What You Need to Know About Credit

You sit down in your mortgage broker's office because you can’t stand the news. Your credit is so bad you will not be able to secure a loan to buy the dream home you just bid on. Can you imagine? After months of taking time off work to run from one open house to the next, you forgot to check your credit report to make sure your credit was in order. What independent credit reporting agencies say about you and your credit can and will make the difference between your ability to buy a car, a house, or even a simple pair of shoes.

Your credit report contains everything about your credit history, including the good, the bad, and the ugly. Details you would never dream of sharing with even your closest of friends are listed neatly for all creditors to see. Your last residence, your employment history, your bill payment history, how many credit cards you have, how much you owe, and how much access to credit you already have are just a few of the juicy details contained within your report.

So what hurts your credit? Paying bills late, defaults on loans, too many credit cards, canceling your credit cards, large balances, medical bills that were lost in an insurance shuffle can all end up creating black marks on your credit report.

Many major life events, such as marriage and divorce, purchasing a home, or having a child are also financial changes that involve and can affect your credit.

Even worse, many credit files contain inaccuracies that can harm your credit rating. Just as reviewing your credit card statement can reveal charges you did not make, reviewing your credit report can reveal activity on accounts you don't use or new accounts you did not open, alerting you to the possibility of identity theft.

Few Savvy Ladies know that they can fight an improper charge on their credit card. The Fair Credit Billing Act, which was passed in 1974, makes sure the law is on your side. In fact, your credit card company is required to investigate and either correct the mistake or explain why the bill is correct within 90 days. They must acknowledge your complaint within 30 days.

Make sure to put your complaint in writing and send it via certified mail to "Billing Inquiries," which is listed on the back of your card statement. According to the law, your dispute letter must include your name, address, account number and a description of the problem. Visit Bankrate.com for a sample dispute letter to help you on your way. The deadline for notifying your credit card company of a billing error is 60 days from the date the bill was mailed to you. Keep in mind that the 60-day clock starts ticking on the day your issuer mails your billing statement, not the date you receive it. So by the time you receive your bill, you actually have 50-odd days to get a dispute letter back to your card issuer.

Request your free credit report online or by calling 1-877-322-8228. You can also contact any of the following “big three” credit reporting agencies: EquifaxExperian, or TransUnion.

Women & Retirement: Don't Wait, Start Saving Today

Poor and alone isn’t the retirement any of us dream about. And the following statistics conjure up some very scary images:

(Sources: Dee Lee’s Everywoman’s Money: Financial Freedom; Social Security Administration.)

  • More than 50% of all marriages fail.
  • After a divorce, the average woman sees her standard of living drop by as much as 30%.
  • The average age of widowhood is 56 years old.
  • The average woman lives to 80. (The average man, age 74.)
  • The poverty rate for elderly women is twice that of elderly men.

Fortunately, it’s never too late to start investing or to invest more!

Of course, the steps you need to take to ensure that you have enough money during retirement depend, in large measure, on your current age and situation. Here’s a breakdown of some things to consider, depending on just how long you have until retirement.

Gen X

As a group, younger women tend to be savvier than their older sisters about managing their money. And that’s a good thing because getting an early start is half the battle. During your younger years, the key is to save whatever you possibly can. That’s because the magic of compounding becomes all the more powerful the longer your time horizon. Consider this: If you save money throughout your 20s and then quit saving at 30, chances are you’ll come out dramatically ahead of someone who starts saving in their 30s and contributes for twice as long.

Baby Boomers

Perhaps, surprisingly, for a generation of women who accomplished so much in the workplace and in politics, boomer women are less in charge of their financial lives than their younger sisters.

Older baby boomers are starting to set their sights on the end of their working days. But for many women of this generation, early retirement isn’t a likely option. In fact, many will have to work longer or even take on a second job to make up for years of poor retirement savings.

Recognizing that many people are nearing retirement unprepared, the government is making it easier for them to save. Folks aged 50 or older will be able to make slightly higher contributions to their IRAs via “catch-up” contributions of up to $6,500 in 2014. Increased contributions will also be permitted in 401(k) accounts. This might not sound like a lot, but over several years, it can make a big difference.

Divorcées and Widows

One issue that can affect women of any age is divorce. When Prince Charming turns out to be more toad than prince, many women feel unprepared to manage finances on their own.

While nobody wants to assume they’ll wind up getting divorced or widowed at an early age, the fact remains that you need to take personal responsibility for making sure you have a comfortable retirement. With a bit of planning, it shouldn’t be too hard. By saving more now, you’ll free up time during retirement to focus on the things that really matter, like showing your granddaughter what being a happy old lady is all about!

So how much will you need to retire?

That depends. A quick rule of thumb is you will need 80% of your pre-retirement income in order to live comfortably. For others you’ll need more — that is, if your idea of retirement involves more than shuffleboard and a rocking chair!

Recommended reading: The Random Walk Guide To Investing by Burton G. Malkiel

You’re in Balance! But Are Your Investments?

Twist and turns… Up and down… The investment markets are going through another wild year—fortunately, this time, the volatility is generally in a positive direction. But the dramatic swing in stock returns after three bear years, along with dramatic swings in some other types of assets, raises a few questions for all investors. Is my portfolio balanced?

Rebalancing a portfolio must be done at least once a year. It involves periodically readjusting your mix of assets. Smart Savvy Ladies start by establishing an initial asset allocation, assigning percentages of the portfolio to assets such as stocks, bonds and cash, and perhaps other types of investments such as real estate and commodities. The allocations are further broken down by subcategories, such as different types of stocks and bonds.

The target allocations should be appropriate for that Savvy Lady’s investment goals and financial circumstances, as well as comfort level with certain types of investments. A Savvy Lady with no children and nearing retirement, will likely have a different asset mix than a Savvy Lady right out of college in her early accumulation years.

Why rebalance just because a portfolio no longer matches its original allocation? Why not just let it ride—especially if the market’s going up? Because if you don’t, you increase the risk that you won’t achieve your investment goals! Say you had 55 percent in stocks and 45 percent in bonds in the early 1990s. Unless you rebalanced along the way, by the end of 1999, that mix might have become “unbalanced”—say, 80 percent in stocks and only 20 percent in bonds.

You know what happened next. This stock-heavy portfolio, (especially if it was loaded of tech stocks) suffered more when the stock market declined drastically over the next three years than it would have had it maintained its original 60/40 balance through periodic rebalancing.

How much to allow a specific asset category to shift before readjusting it is up to you, but a common guideline is five percent. To rebalance, consider directing future investment funds into those underrepresented categories until it’s back in balance. You also can readjust by selling off some of the overrepresented assets (the winners) and buying the underrepresented (the losers)—selling high and buying low. Savvy Ladies always sell high and buy low!

The Best Ways to Prevent Identity Theft

The best way to keep an eye out for identity theft is to read your statements from credit card companies, banks and credit unions, and to routinely check your credit reports for suspicious activity.

Credit reports. You know that you need to check your credit report at least once a year! Whether you need to correct errors, make sure you are not the latest victim of identity theft, or keep closer track of your bill-paying habits, your credit report is the key to protecting the financial you.

By federal law you have free annual access to your credit report, and you can attach a “fraud alert” to your credit report as protection against identity thieves who might apply for credit using your name. You can order your report at https://www.annualcreditreport.com.

Review your free credit report from each of the three major credit bureaus: Equifax, Experian, TransUnion. If an identity thief is opening financial accounts in your name, these accounts may show up on your credit report. Look for inquiries from companies you’ve never contacted, accounts you didn’t open, and wrong amounts on your accounts. Also be sure your personal information – like your social security number, address, name or initials, and employers – are correct.

According to AnnualCreditReport.com, make sure you recognize the accounts and loans on your credit report. Then, check that the information on your credit report is correct: your name, account status (open or closed), history, etc. If you find information that you believe is not correct, contact the company that issued the account or the credit reporting company that issued the report.

For more information read this article published by Consumer Financial Protection Bureau.

Financial accounts and billing statements. Look closely for charges you did not make. Even a small charge can be a danger sign. Thieves will sometimes make a small debit against your checking account and then, if the small debit goes unnoticed, return to take much more.

Don’t ignore bills from people you don’t know. This is another potential red flag. A bill on a debt you never borrowed may be an indication that someone else has opened an account in your name. Contact the creditor to find out.

Paperwork and old files. Be sure that anything you toss in the trash or recycle bin does not contain any personal or confidential information. A quick way to prevent thieves from stealing your identity this way is to shred all documents or use one of these handy little stamps.

When it comes to identity theft, it’s true: An ounce of prevention is worth a pound of cure!

Insuring a New Marriage

Reevaluating their insurance coverage isn’t uppermost on the minds of most newlyweds, and it won’t ensure a long and happy marriage. But the right insurance can go a long way toward shielding you against the kinds of financial calamities that can strain and sometimes break a marriage. Life insurance It’s a given that couples should have life insurance if they have or expect to have children, or if one spouse earns most or all of the couple’s income. But it is often suggested that life insurance is not needed where couples have no dependents and where both spouses work in comparable-paying jobs. This may be suitable in some cases, but you may still want to consider additional life insurance beyond what is offered at work.

Working couples typically raise their standard of living: a bigger apartment or house, nicer cars, new furniture, vacations. So the question becomes, if one of them dies, will the survivor be able to afford to maintain the higher standard of living on his or her own salary? Probably not—unless each has sufficient life insurance to cover the gap.

One or both spouses may bring debts to the marriage, such as student loans or credit card debt. The surviving spouse probably won’t be responsible for debt accumulated by the deceased before the marriage (though there can be complications in this area). But the deceased’s estate would have to pay off the debt, thus leaving less for the survivor. The couple also may accumulate new debt together that the surviving spouse may find difficult to pay off without life insurance.

Life insurance may be necessary to cover funeral expenses and possibly out-of-pocket expenses incurred from medical treatments associated with the death. The advantage of getting life insurance early for many newlyweds is that they can lock in low premiums while they are young and healthy.

Lastly, while group term insurance is probably available at work, it can’t go with you if you leave your job, and is often insufficient. You’ll want to acquire additional life insurance at a time when you are most insurable.

Rename beneficiaries If either one or both spouses bring existing life insurance to the marriage, they’ll probably want to name their new spouse as beneficiary. Otherwise, death proceeds could end up going to an ex-spouse or a parent.

Disability insurance Competing with life insurance premium dollars are other insurance needs for newlyweds, and high on that list should be disability insurance. This insurance is designed to partially make up for lost wages should you be unable to work due to an injury or long-term illness. Statistically, young people are more likely to suffer a lengthy disability than to die prematurely.

Group disability coverage at work typically is not sufficient, so you may want to supplement it with a private policy. While any employee, single or married, should consider this, it becomes even more important when you have a spouse, particularly one who may be dependent on your income.

Health insurance Married working couples should review their individual health plans at work to see if they want to go with coverage under only one employer and possibly save premium dollars, or in some other way coordinate coverage between the plans.

Auto insurance Couples will probably want to insure their autos with a single company in order to get a multi-car discount. Married drivers usually can get lower rates, too, so be sure to tell your agent you’ve gotten married. Coordinating other property and casualty insurance with the same carrier can also save premium costs.

Homeowner’s or renter’s insurance While this is coverage you should get even when you’re single, it becomes more critical when you get married. For one thing, you’re likely to start accumulating more expensive possessions that you want to be sure are covered. For some valuables, such as the wedding ring, you may need to insure them with a separate rider.

Don’t overlook renter’s insurance. Newlyweds commonly live in apartments or rented houses before buying their first home or condo, yet they often mistakenly believe that the landlord’s insurance will cover damage to their personal property. Renter’s insurance is inexpensive and easy to get.

Understanding The Spousal Benefits of Social Security

by Daniel G. Mazzola, CPA, CFA

IMAGE ©  LARRYHW

IMAGE © LARRYHW

Social Security has been described as the one product all Americans buy yet none understand. Though flippant, this characterization sadly rings true. In 2012 the Social Security Administration paid benefits to over 56.3 million Americans, the overwhelming majority of whom had no idea how eligibility is determined, the manner in which payouts are calculated, or the extent to which family members may collect on the earnings record of the primary breadwinner.

Many of those eligible for social security are not aware of an interesting feature called the spousal benefit. Spousal benefits allow one spouse to collect a retirement benefit based on the working record of the other spouse, regardless of his or her own earnings history.

As an example, we will use a married couple (Mr. and Mrs. Smith) with the husband employed while the wife stays at home to maintain the household. Social Security regulations allow Mrs. Smith at full retirement age (currently 66 for those born in 1943 through1954) to receive a spousal benefit of 50% of Mr. Smith's payout, even though she has no record of employment outside the home. Had Mrs. Smith worked during her lifetime to earn enough credits for social security coverage, she would then be entitled to the greater of the spousal benefit (50% of Mr. Smith's) or one derived from her own record.

According to the Bureau of Labor Statistics, in 2012 both spouses were employed in 47.4% of American "married couple" families; this rate increases to 59.0% for "married couple with children" units.

With reductions in benefits for filing before full retirement age and delayed credits (until age 70) for applying afterward, married couples need to consider a planned strategy for collecting their social security  benefits. Strategies have been designed to assist them in maximizing social security payouts.

New Social Security rules were signed into law on November 2, 2015 which changed the right to file a restricted application for those born on or after January 2, 1954.

If you were born on or before January 1, 1954, are currently married, or are divorced and eligible for a benefit on an ex-spouses's record, once you reach full retirement age (assuming you have NOT yet claimed your benefits) you can use a restricted application to claim a spousal benefit, while letting your own benefit continue to grow.

Spousal benefits add another layer of complexity to an already challenging question: "When should someone take their social security benefits?'

There is, obviously, no one-size-fits-all answer. The many nuances of the program, combined with an individual's lifestyle, health status, and financial resources should all be considered before reaching such an important decision. Yet while perplexing, social security is too important a topic not to educate oneself and become cognizant of the varied features and options.

As Americans, we pay for social security retirement benefits in the form of payroll taxes remitted through a lifetime of working. It would be imprudent not to take full advantage of all it has to offer.

Savvy Ladies Get Prepared! Do You Have the Right Legal Documents?

It makes sense to want to exercise control over decisions about your health care even when you are physically or mentally unable to do so. But how can a Savvy Lady do that exactly? The best way for Savvy Ladies to accomplish that control is with the combination of a living will and a durable power of attorney for health care. These documents are not nearly as scary as they sound! Despite the fact that the vast majority of American adults recognize the importance of these two documents only 20 to 30 percent of American adults have them, according to the National Council on Aging. Unfortunately, every few years, a case captures national attention as to why such documents are critical for adults of all ages.

A living will is a person’s written expression of what life-sustaining medical treatment they wish to have or not have should they become terminally ill or on life support and are not able to physically or mentally express that decision to their medical providers. Ideally, the living will should cover such issues as resuscitation, life support technologies, use of artificial nourishment, medication and pain management, and organ donation.

With a properly drafted living will in hand, make a copy and discuss it with your primary physician. Also give a copy and thoroughly discuss it with the person you appoint as your agent for your accompanying durable power of attorney for health care. While hospitals and nursing homes will often accept copies, it’s still best to keep the original in a place your agent can get to easily; for example, don’t put it in a safe deposit box unless the person appointed as your agent has access to that box. It’s also wise to discuss the living will with all those close to you, so the person who ends up making medical decisions on your behalf won’t be battling siblings or other relatives.

And don’t wait until you’re older to draw up a living will. A highly publicized case that received national recognition was the case of a Florida woman (Terry Schiavo) whose situation sparked a 15-year legal and political battle between her husband and her parents. She was only 26 years old when she became incapacitated!

The second key component of any sound plan, and one that’s often overlooked, is the durable power of attorney for health care. With this document, you appoint a person to act as your agent to make medical decisions on your behalf in the event you are incapacitated. While you can be as explicit and as limiting as you like in such a document, it is usually better to arm the agent with broad powers so he or she can handle unforeseen situations.

As with the living will, an attorney should draft this document.

Ultimately, the keys are to complete these documents in advance, be sure they are drafted or reviewed by an attorney, and discuss them thoroughly with those close to you. Also, be sure to review existing documents to verify they are up to date with changes in law. Only then can you be reasonably assured your wishes will be carried out under such difficult circumstances.