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Do credit scores punish you for not carrying debt?

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Trying to boost your credit score by taking out an installment loan may not be worth the effort and expense.
(Elise Amendola / Associated Press)

Dear Liz: I am fortunate to be able to afford homeownership without having to obtain a mortgage. The same is true of owning cars without a car loan. I pay my credit card bills in full each month. In short, I do not carry any debt.

However, it seems to me that I am being “punished” by not carrying a load of debt. My credit score is reduced by this lack of debt and I am wondering why this is.

Answer: The most commonly used credit scores don’t “know” if you’re carrying credit card debt or not. The balances used in credit score calculations are the balances the card issuers report to the bureaus on a given day (often your statement balances). You could pay the balance off the next day, or carry it for the next month, and it would have no impact on your scores.

A small part of credit scoring formulas measure your mix of credit, or whether you have both revolving accounts (such as credit cards) and installment loans (mortgages, car loans, student loans, etc.) You may get higher scores if you added an installment loan to your mix. If your scores are low, it can be worth adding a small personal loan to boost them. If your scores are good, though, it may not be worth the effort and interest expense.

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Social Security spousal benefits

Dear Liz: In a recent article, you mentioned spousal benefits. If someone started her own Social Security benefit at 62, is there no way of drawing a spousal benefit at a later date?

Answer: When you apply for Social Security now, you’re “deemed” (considered by the Social Security Administration) to be applying for both your own benefit and any available spousal benefit. If a spousal benefit is larger, you’ll get that, and you can’t switch back to your own benefit later.

You may be able to switch from your own benefit to a spousal benefit, however. Let’s say that when you applied at 62, your spouse had not yet applied for his or her own benefit. When he or she does apply, you’ll be automatically switched to a spousal benefit if it’s larger than your own.

Before Congress changed the rules, it was possible for one spouse to “file and suspend” — file and immediately suspend an application for retirement benefits, which was enough to allow a spouse to collect a spousal benefit. Today, a spousal benefit is typically only available if the primary earner has started his or her own retirement benefits.

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The fat in your genes/jeans

Dear Liz: In one of your recent answers, you said “avoiding obesity” was part of choosing healthier lifestyles. The problem with that statement is that a large percentage of people cannot avoid obesity, because obesity is “wired” into their genes or otherwise into their personal biological makeup. People range all over the spectrum. I personally knew a guy who would normally eat four Double Double burgers plus fries when he ate at In-N-Out Burger, and he didn’t exercise, but he was trim as a telephone pole. But guys in my family have large lumps of extra fat on their bodies, even if we don’t eat that much.

Your casual mention unfortunately reinforced the false notion that people who have obese bodies always are that way because they eat poorly or too much, while people with trim bodies are always that way because they eat wisely and exercise. That false notion just makes life harder for those of us who have obesity regardless of how we eat. I’m sure you didn’t intend to make my life more difficult at all, but that’s the effect that such casual allusions have. It would be best to stick with unassailable phrases such as “eating wisely.”

Answer: Some people definitely are blessed with faster metabolisms, and research indicates that others have a genetic predisposition to packing on weight. But obesity is largely preventable, according to the World Health Organization and other medical authorities.

The WHO recommends that individuals limit the fats and sugars they eat, increase consumption of fruit and vegetables, as well as legumes, whole grains and nuts; and engage in regular physical activity (60 minutes a day for children and 150 minutes spread through the week for adults). Programs such as Weight Watchers or 12-step groups such as Overeaters Anonymous can help provide support. You may never be skinny, but you can definitely take steps to improve your health.

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. Distributed by No More Red Inc.


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