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Dumping debt could make you ‘credit invisible.’ Why that’s a problem and how to fix it

A rollerblader on San Gabriel River Bike Trail silhouetted against cloudy skies over Santa Fe Dam
People who once had good credit scores can become “credit invisible,” with a significant drop in scores, if they pay off all loans and stop using credit cards.
(Irfan Khan / Los Angeles Times)

Dear Liz: I have a credit card issue that I’ve not been able to resolve and hope that you can provide some helpful suggestions. I am a debt-free senior. I owe nothing on my house or vehicles and I pay off my one credit card each month. I’ve no missing payments on utilities. My credit card reduced my credit limit last year saying that my credit scores were too low. In fact they’ve fallen from 800s to 600s over the past year. The bank that issues my business credit card says they use an algorithm that allows no human interaction for adjustments for people like me who are debt free. Any suggestions?

Answer: Many people who once had good credit become “credit invisible” if they’ve paid off all their loans and stopped using credit cards.

But regularly using a credit card or two should be enough to stay visible to the credit score algorithms and to keep good scores. The problem may be the type of card you’re using. Business credit cards often don’t show up on personal credit reports, so your use of the card wouldn’t be included in credit score calculations. If that’s the case, consider applying for a personal card to start rebuilding your scores.

The other possibility is that you’ve become the victim of identity theft. Please check your credit reports at the three major credit bureaus. You can do so for free by typing AnnualCreditReport.com into your browser window or by calling (877) 322-8228.

Dear Liz: My ex-husband is 13 years younger than me. We were married for 10 years and he earns more than I do. If I start drawing my own Social Security benefit at age 70, can I switch to his benefit when I’m 75 and he is 62?

Answer: Normally when someone applies for Social Security, they’re “deemed” or assumed to be applying for all the benefits for which they’re eligible. If you’re eligible for your own retirement benefit as well as a divorced spousal benefit, for example, you would get the larger of the two amounts. You wouldn’t be able to switch from one to the other later.

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There are a few exceptions to this rule, however, and your situation is one of them. You won’t be eligible for a divorced spousal benefit until your ex-husband reaches minimum retirement age (62). At that point, you would be eligible for 50% of his primary insurance amount, or the check he would get at his full retirement age, which is currently between 66 and 67. If that amount is larger than what you’re receiving, you could switch.

If you’re going to switch, though, you may not want to wait until 70 to apply for your own benefit. Delaying makes sense for most people, because they’ll live past the break-even age in their late 70s when the larger value of the delayed benefit more than makes up for the smaller checks they pass up in the meantime. If you switch at 75, though, you won’t have received your own benefits for long enough to make up for bypassing the smaller checks, says Dr. William Reichenstein, head of research at Social Security Solutions.

Deciding when to start Social Security can be tricky even in simpler situations than yours, so consider using a site such as Social Security Solutions or Maximize My Social Security for advice on when to claim.

Dear Liz: I have about $16,000 in a Roth IRA that I plan to leave to my daughter. When she collects this on my death, does she pay tax on the withdrawals?

Answer: No. She would have to pay taxes on withdrawals if the money were in a regular inherited IRA, but not if the money is in a Roth. She will be required to withdraw the money within 10 years, though. Congress eliminated the so-called “stretch IRA” for most inheritors, so non-spouse beneficiaries can no longer stretch withdrawals over their own lifetimes.

Liz Weston, Certified Financial Planner®, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.


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