Your credit score represents your creditworthiness. A good credit score can help you start a business or get a car loan. However, it also affects many facets of your financial life.
Get on the path to stellar credit with these two tips:
It’s not a complex process, but it is absolutely vital for your financial picture. When you have either a very good credit score or an excellent credit score, it will cost you less to borrow money than if you have a bad credit score. That’s because lenders will see you as a trustworthy borrower. As such, they are more likely to offer you more favorable rates.
A good score grants you near-immediate access to rewards on credit cards that offer cash back opportunities, travel perks, and protection on major purchases.
How does the credit scoring process work?
Additionally, how is your score calculated? Is it possible to establish and maintain good credit? The answers to these questions are below:
A good credit score falls within a range of 300 to 850, where 300 is viewed as a very poor score and 850 is regarded as an excellent score. There are various different credit scoring models, though FICO and VantageScore are the two most popular models. The three credit bureaus—Experian, Equifax, and TransUnion—calculate credit scores by using the two aforementioned credit scoring models.
What’s an excellent credit score? With the FICO scoring model, an excellent score is one that falls between the range of 800 and 850. With VantageScore, an excellent score has a wider range, falling between 781 and 850.
The better the credit cards, the higher the credit score requirement. That is because a good score reaps many benefits and deals in your favor. The better your score, the better your chances of being approved for credit cards of this nature. Also note that card issuers look at income above all, but monthly payments are viewed as well in determining your eligibility.
According to Experian, when FICO calculates your score, this scoring model also takes the following information into consideration:
Your payment history, or whether you pay your bills on time, constitutes 35% of your total credit score.
Also known as your credit utilization rate, the number of accounts you owe, or the total credit and loans you are responsible for compared to your total credit limit, accounts for 30% of your final credit score.
FICO looks at your credit history, which is a time-focused record of how you have managed credit since opening your first credit card. Credit history accounts for 15% of your credit score.
New credit, or how often you apply for and open new credit accounts, constitutes 10% of your credit score with FICO.
Last but not least, you credit mix, or the variety between installment loans and revolving credit accounts, makes up 10% of your credit score calculation.
Obtaining access to your credit score can be tricky
Some credit card issuers, like Citi and Discover, provide free FICO scores to people who have credit cards with these issuers, while other issuers, including Chase and Capital One, offer free access to VantageScore credit scores.
You can get a free credit report from each of the three major reporting bureaus each year, though keep in mind that your credit report is different from your credit score alone. You may access your report through AnnualCreditReport.com, though sometimes, such as during the pandemic, people have been able to obtain their credit report more frequently as a courtesy.
How to build good credit
Make sure you align your actions with your goals. This can take the shape of always paying your bills on time and keeping your credit utilization ratio as healthy as possible. Another option is to ask someone you know if they would allow you to be an authorized user on his or her credit card. Not only is this a low-risk option, but it will also allow you to increase your credit score over time, which is the ultimate goal.
You can also improve your credit score by simply paying your monthly bills on time, including submitting utility payments and and paying your cell phone usage bill in a timely fashion. If you’re already on top of your payments and ensure that you make them on time, feel free to contact Experian Boost, which is one of many ways to elevate your credit score.
In fact, some people who reached out to Experian Boost have witnessed an impressive increase of approximately 10 points. Additionally, you may also think to increase your credit score by opening and activating a student card at college.
Some college student card lenders are lenient when it comes to credit history requirements, as they understand many people seeking this type of credit opportunity are eager to increase their credit score and credit history alike. You must be at least 18 years old to apply for a student card through a college. Many lenders of this nature require that you have a steady income stream as well.
On-time payments are yet another important factor in calculating your FICO score, if not the most important. Maintaining a low credit utilization rate is next in line in terms of importance, as is your payment history. Do your best to minimize the number of new credit applications that you submit. Taking such a simplistic action towards improving your credit score may help you lower your score by five points with ease.
Get into the habit of paying attention to your credit score and taking measures to improve it overall. By doing so, you will significantly impact your financial health, both now and in the long run.
You are heir to a house — hurray! But wait! There’s a mortgage on the property. What are your options? You have three options in this situation, two of which are relatively simple: You can sell it to pay off the mortgage and keep the rest of the money as your inheritance or you can keep it and pay off the mortgage with a lump-sum payment.
The third option is more complex, although not nearly as complex as financing a home on your own. You can take over the loan and become responsible for the mortgage payments. You do not have to go through an application process to do this. As an heir, you can be named the borrower without having to go through the normal loan approval process, which would require you to get your own financing.
Many wills contain standard language requiring all debts to be paid at death. This does not normally include any mortgage held by the decedent, but the provisions can be complex and there may be exceptions. Work with qualified professionals to make sure the law applies in your situation.
Another common situation is inheriting a house with a reverse mortgage. You’ll need to pay off the reverse mortgage if you want to keep the property, although the heirs often just sell the property to pay off the reverse mortgage and keep what’s left over.
What’s right for you?
To be sure that you’re making the right decisions, start by figuring out both the home’s value and the outstanding mortgage. If you inherited the home along with other heirs, all the homeowners should get together to discuss options. Would everyone be happy keeping the home as a rental or vacation property? Or do one or more heirs want to get the equity out of it without spending funds on the mortgage?
What if the mortgage is more than you can afford? You can consider the possibility of refinancing at a lower rate and longer term if your credit and financial situation allows you to do so. After all, you may also have a mortgage on your primary residence.
There are other expenses you’ll need to take into account to make sure keeping the house is financially feasible:
Any renovations that might be necessary.
Yard upkeep.
Roof and exterior maintenance.
Replacing or repairing appliances and other systems in the house.
Property taxes.
Heating and air conditioning.
Insurance.
On the other hand, there may be assets that go with the house, such as jewelry, art and furniture, that no one wants and that can be turned into cash to help pay off the mortgage. Once you’ve taken a full accounting of the finances, you’ll be in a better position to make a decision.
It is irresponsible enough that absent-minded parents occasionally manage to leave their children behind when they leave the park or get off the bus. Even so, it seems far more incomprehensible that parents could possibly forget to include one or more of their kids when they are in the process of drafting their wills and allocating their estates.
However, believe it or not, this happens often. Conscientious parents might draft their wills after the birth of a child or when the rest of their family is still relatively young.
But sometimes, another child will be born later on, and the parents will simply forget to update their wills after the fact. While it is not always a fatal omission or an intentional act, there are unlucky consequences that can arise as a result.
That said, many states will consider the child who was born later to be a beneficiary. This is because states will often revert to relevant intestacy rules, which are the default guidelines that govern situations where parents die without a will in the first place.
So, the courts have ways by which they can rectify an inadvertent omission or a clerical mistake. This should remedy the problem unless the wills left behind by parents have specifically excluded the omitted child on purpose.
How to leave a token bequest
Disinherited heirs may initially be shocked to find out that their parents left them either a very small amount of money or even nothing at all. Children may regard a situation such as this to be insulting, leading them to question the relationship they had with their deceased parent or guardian.
It makes sense to interpret such a situation as adding salt to the wound. Many estate lawyers suggest that testators leave at least a nominal amount of their estate to an heir whom they wish to cut off rather than simply failing to mention them by name.
At a bare minimum, this alternative offers some sort of closure to the child being excluded or omitted. That said, the bequest does not need to be in the form of money.
People often leave sentimental heirlooms with very little financial value as a gesture of affection. If you wish to bequeath your old, cracked teapot instead of allocating any of your money to your child, you could do just that while accomplishing the goal of including everyone in your will.
In all fairness, William Shakespeare left his wife his second-best bed in his will, and while beds were indeed much more valuable 400 years ago than they are today, the point still stands. You may also want to write a memo to yourself and state your decision to only leave a trivial amount to your child.
The document can serve to reinforce that your choice was not impulsive nor was it conceived as a result of external pressure. That said, be careful with your wording.
Try not to attempt to come across as being overly emotional or critical when drafting your justifications. If your will is ever challenged in the future, any circumstances you originally cited might no longer be true.
For example, if you describe your good-for-nothing son and state that he has never done a day of honest work in his life, he might be holding down a well-paid job when it comes time to challenge the contents of your will.
Less is more
While certain people will encourage testators to leave something small for all potential heirs, other experts will discourage people from even offering the tiniest of bequests. Those with this mindset would contend that it is more cost effective to merely acknowledge the relationship and leave it at that.
The real goal is to at least mention the disinherited person in a brief fashion so that you can address their existence while eliminating the possibility of them believing they were accidentally overlooked. Moreover, those who contest wills might latch onto situations, such as a one-dollar bequest, deeming it a cruel provocation that is out of character in regard to the testator.
For instance, the disinherited individual might use the minimal bequest as evidence of mental incapacity on the part of the testator. The less you give the disinherited individuals to work with, the more likely your requests will be upheld.
Another danger of leaving even a single dollar is that any amount of money will automatically make the child a beneficiary. Adding a beneficiary to the list can affect the protracted probate process.
Once you have officially transformed someone into a beneficiary of your estate, the executor will be obliged to distribute accounting documents, pleadings and administrative records to them as they must do for all beneficiaries. This costs money, and even the most mundane administrative tasks can take away from the estate’s assets while also delaying probate resolutions.
If you ultimately decide against a bequest, you can achieve similar results with the help of straightforward language. Your attorney can draft words to the effect that after thoughtful and careful consideration, you have decided not to include Junior.
There are a number of ways to phrase your intentions or state your preferences. For instance, you could include a clause such as “I am intentionally disinheriting Junior as well as Junior’s descendants for reasons I deem to be sufficient.”
It is always recommended you consult with a lawyer as you work to prepare your will. Seeking expert advice is imperative, especially if you are contemplating the idea of making a token bequest.
A premium tax credit is designed to lower the total cost of health insurance plans that are already relatively expensive in the United States. You can either apply the premium tax credit on a monthly basis to your insurance bill or choose to receive your premium tax credit in the form of a refund that is put toward your federal income taxes.
The premium tax credit is only an option if you purchased an insurance plan directly from a state or federal health insurance marketplace. Furthermore, eligibility for the tax credit is typically determined when you initially apply for your health insurance plan either through a state or federal health insurance marketplace.
The credit, which was originally implemented under the Affordable Care Act, exists for the sake of assisting eligible families and individuals with low or average incomes that find it difficult to afford health insurance on their own. Additionally, the amount of health insurance tax credits that are made available is dependent on a decision by the federal government.
This means the dollar value of the tax credits will be the same amount nationwide, no matter which state you call home. If you are interested in receiving this premium tax credit, you will need to meet certain requirements related to your income level and the number of people in your family and file a tax return alongside Form 8962: Premium Tax Credit.
If you decide to itemize your deductions in the Schedule A section of Form 1040, then you might be able to deduct any and all money that you put toward medical and dental care for yourself, your spouse and your dependents over the course of that taxable year.
That said, of your total medical expenses, you will only be able to deduct the amount that surpasses 7.5% of your total adjusted gross income. Additionally, another key detail to keep in mind is that people who sign up for catastrophic coverage automatically do not qualify for tax credits related to health insurance.
What is covered?
“Medical expenses” is a very broad term, but typically, these expenses will include any type of payment that has been put toward curing, diagnosing, mitigating, preventing or treating health-related concerns, ailments or diseases. Essentially, payments pertaining to any type of treatment that aims to heal, improve or care for the body are considered medical expenses in most cases.
In that line of thinking, medical expenses that can be deducted often include the following, though this list is not all inclusive:
Acupuncture.
Admission to receive medical care.
Chiropractors.
Contact lenses.
Crutches.
Dentists.
Doctors.
False teeth.
Glasses, both for reading and prescription-based lenses.
Hearing aids.
Inpatient care.
Insulin assistance.
Medical conferences.
Practitioners.
Prescriptions.
Psychiatrists.
Psychologists.
Rehabilitation centers.
Residential nursing homes.
Service animals.
Smoking cessation programs.
Surgeons.
Transportation related to medical care.
Weight loss programs.
Wheelchairs.
When considering which medical expenses can be deducted for the taxable year, you are only permitted to include medical expenses that you paid for during said taxable year. You are also required to reduce the total amount of deductible medical expenses for said taxable year by applying reimbursements that you received.
This is relevant whether you directly received the reimbursement yourself or the reimbursement was applied on your behalf to the total amount of medical expenses that you owe. If you are trying to figure out whether a specific expense of yours is deductible, refer to the official IRS website and contact a professional who has experience deducting medical expenses.
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