Dear Liz: My credit score fluctuates between 799 and 815. It used to be 850. I always pay my bills in full and on time, and keep the credit utilization low. The only comment I can find about why my credit score isn’t higher is that I lack a loan. I don’t owe any money and see no need to get a loan, so is there anything I can do to get the score back closer to 850?
Answer: Possibly, but there’s really no point in having a “perfect” credit score.
Most credit score formulas use a 300-to-850 scale. By the time your scores are in the mid-700 range, you’re typically getting the best rates and terms from lenders. Also, scores change all the time and vary according to the formula used. Even if you could achieve an 850 with one type of score, you might not achieve it with another score or keep that high number for long.
You typically need an installment loan such as a mortgage or car loan to get scores closer to 850. Borrowing money just to improve scores can make sense if you’re just starting out or trying to fix battered credit, but not in your situation.
If you’re determined to get higher scores, consider using even less of your available credit. Top scorers typically use less than 10% of the credit limits on their cards. The balance that matters for credit scoring calculations is typically your statement balance, so one way to reduce utilization can be making a payment right before the statement closes. Just be sure to pay off any remaining balance before the due date so that you don’t incur late fees.
Surviving spouse’s home gains
Dear Liz: If a surviving spouse is selling the couple’s longtime home, are there any special provisions on the long-term capital gains?
Answer: When one spouse dies, their half of the home gets a new value for tax purposes. The value is “stepped up” to the current market value, so that the appreciation that happened on that half of the property is no longer taxable. In community property states, both halves of the property get this step up.
Let’s say a couple bought a home for $100,000 and that it was worth $250,000 when the first spouse died. In most states, the tax basis — what’s subtracted from the net sales price to determine potentially taxable capital gains — would rise from the original $100,000 to $175,000. The surviving spouse’s basis would remain at $50,000 while the deceased’s half would be stepped up to $125,000 (one half of the current $250,000 value). If the home was sold for $250,000, there would be $75,000 of potentially taxable capital gain.
In community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — the home’s basis would get a double step-up to $250,000. If the home was sold for $250,000, there would be no potentially taxable capital gain.
Even if there is a gain from the sale, a single person can exclude up to $250,000 of home sale capital gains from their income as long as they owned and lived in the home at least two of the previous five years. Couples can exclude up to $500,000. However, widows and widowers who sell their homes within two years of their spouse’s death can take the full $500,000 exclusion.
Survivor Social Security benefit
Dear Liz: When you discuss a survivor receiving 50% of their spouse’s Social Security benefit, are you basing the 50% on gross or net income?
Answer: The survivor benefit is up to 100% of what the deceased spouse or ex-spouse was receiving from Social Security, before taxes. If the spouse or ex starts Social Security early, that reduces the potential survivor benefit. If the spouse or ex delays Social Security beyond full retirement age, that can increase the benefit.
Spousal benefits, by contrast, are paid when the spouse or ex is still alive. Spousal benefits can be up to 50% of what the spouse or ex would receive at full retirement age.
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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