Dear Liz: As I counsel my teenagers on their personal finances, I wonder if they can live without a credit score. It is surprising that in order to get a good credit score, you have to have debt, or at least a credit card. Wouldn’t living debt free be better? With FICO scores becoming de rigueur, is it reasonable for anyone to get away with no credit score, especially if the only debt they would ever consider is a mortgage? In addition, credit reporting companies now have ancillary services that provide reports based on rent and utility payments that could be of use. How effective are these reports?
Reply: Credit scores are not meant to gauge how well you are managing your money. They are meant to gauge how well you are managing credit. If you don’t have and don’t use credit, you won’t have a score, and lenders will be reluctant to give you credit when you want or need it.
You may also have to pay higher down payments for utilities, miss out on the best mobile phone deals, and struggle to rent an apartment. In most states, credit information also helps determine property insurance premiums. In fact, your credit may be more important than your driving record in determining auto insurance premiums.
It’s a myth that you have to be in debt to have good credit scores. You just need to have and lightly use a credit card, and you have to pay it off in full each month. Another option is a credit builder loan, whereby the money you borrow is placed in a savings account or certificate of deposit that you can claim when you’re done making 12 monthly payments.
There are services that will add rent and utility payments to your credit reports. However, the most commonly used versions of the FICO score do not include this information when calculating scores.
Survivor benefits and marital status
Dear Liz: My boyfriend’s ex-wife passed away last year. Can he apply for social security benefits at age 48 even if she remarried when she died?
Reply: The ex’s marital status doesn’t matter. What matters is whether your boyfriend has been married to her for at least 10 years.
If the marriage lasted at least that long, your boyfriend would be eligible for survivor benefits at age 60, assuming he had not remarried by then. If he is disabled, he can apply at age 50. And if he is looking after his ex-wife’s children who are under 16 or disabled, then he can apply at any age.
Survivor benefit recipients can get married at age 60 or later without losing those benefits. (Note that this marriage clause only applies to survivor benefits. People receiving spousal benefits based on a living ex’s work history cannot remarry without losing those benefits.)
Disadvantages of the Medicare Advantage Plan
Dear Liz: You recently wrote about Medicare Advantage Plans, that often cover things like dental, hearing, and vision that traditional health insurance doesn’t cover. You mentioned that the plans have supplier networks, but people should know that those networks don’t always include the experts they might need if they develop serious health issues. The plans themselves may have copayments that make disease expensive. If people want to switch to traditional health insurance and get an additional Medigap policy, they may be faced with medical underwriting that could increase their costs.
Reply: Medicare Advantage plans are sold by private insurers as an all-in-one alternative to traditional health insurance. The plans are certainly popular – the percentage of Medicare beneficiaries who enroll in Medicare Advantage has steadily increased over the years, in part because these private plans seem to cover more. But plans can vary widely in the extent of their networks and in the way they share costs with beneficiaries.
Once you’ve signed up for Medicare Advantage, switching to traditional Medicare can be problematic, as you have noted. Insurers are not required to cover you as they are when you first enroll. Some may refuse to offer you a Medigap policy or may charge you more, depending on your condition.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.