Dear Liz: Two years ago, I was released from prison after being there for nine years. I lost everything I had. When I got out my credit score was 565. I recently bought a car and have made four payments so far. Can you tell me when I might have good credit again?
Responnse: As long as you continue to make payments on time, you should see a gradual improvement in your scores. However, it is impossible to predict how long it will take to get “good” scores. It depends on the information on your credit reports, the credit score formula used, and what is considered “good” by the lender reviewing your application.
For memory :
2:00 p.m. February 9, 2018An earlier version of this column stated that credit loans are typically offered by credit bureaus. These loans are generally offered by credit unions.
First you need to make sure that your payments are reported to all three credit bureaus. Unfortunately, some car dealerships that specialize in bad credit loans don’t report their loans, which means your payments wouldn’t improve your scores. If so, consider getting a credit builder loan. These loans, usually offered by credit unions, put the amount you borrow into a savings account that you can qualify for after making 12 monthly payments.
By the way, payments should always be made on time. A large portion of your credit scores are determined by your payment history. Your low scores mean you’ve fallen seriously behind on your obligations, but even a single missed payment can hurt. Consider putting payments in automatic so that there is no risk of lapsing.
Another big part of your scores is determined by credit usage or the amount of available credit you use. Paying off an installment loan over time contributes to this ratio. The same goes for refunding or light use of a revolving account such as a credit card. If you don’t have a card, consider applying for it. There may be a small initial blow to your credit scores, but it will wear off quickly. People with bad credit often have to start with a secured credit card, which requires you to deposit a certain amount – usually $ 200 or more – with the issuing bank. Use only a small portion of your available credit – 30% or less is good, 20% or less is better, 10% or less is better. Pay the bill in full each month, as there is no benefit in carrying a balance.
Another way to speed up your credit recovery is to be added as an authorized user to someone’s credit card with a strong credit history. This other person does not have to give you access to the card itself, but naming you as an authorized user can import that person’s history with the card into your credit reports. However, not all credit card issuers report this information, so the primary cardholder will need to ask. It is also important that the other person continues to behave responsibly with credit. If the primary cardholder misses a payment or maximizes the card, your scores could also be affected.
You can track your progress using one of the many websites offering free credit scores. Your bank or credit card issuer may also offer free scores. The scores probably won’t be the same that a lender might use to rate you, but they should give you a general idea of where you stand.
IRA distributions and the tax authorities
Dear Liz: I’m 79 years old, fairly healthy, and luckily I have almost $ 600,000 in my IRA account. My minimum required distribution is currently around $ 30,000 per year, which means my IRA funds will last until I’m over 100! I realize that I can pay a penalty and withdraw some of the funds, but I don’t want to be pushed into a higher income bracket. Any suggestions on how I can enjoy the money while I can?
Responnse: You will not pay a penalty for withdrawing more than the minimum from your IRA. This early withdrawal penalty disappeared 20 years ago, after you turned 59 and a half. You will of course owe income tax, but a visit with a tax professional can help you determine how much you can withdraw before you are pushed into a higher tax bracket.
Where to find the Financial Planner’s Fiduciary Oath
Dear Liz: You often mention that a financial planner should be “willing to sign a fiduciary oath to put your best interests first.” Is there a form or formatted letter available to financial planners willing to sign the oath?
Responnse: There are. The Committee for the Fiduciary Standard, a group that promotes the idea that advisers should put their clients’ best interests first, has just such a sample letter to www.thefiduciarystandard.org/fiduciary-oath.
Liz Weston, Certified Financial Planner, is a Personal Finance Columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.