Dear Liz: My credit score ranges from 799 to 815. It used to be 850. I always pay my bills in full and on time, and I keep credit utilization low. The only comment I can find about why my credit score isn’t higher is that I’m short of credit. I don’t owe any money and don’t see the need to take out a loan. So is there anything I can do to bring the score closer to 850 again?
Answer: Possibly, but there’s really no point in having “perfect” credit.
Most credit score formulas use a scale of 300 to 850. If your score is in the mid-range of 700, you are usually getting the best rates and terms from lenders. Also, the results are constantly changing and vary depending on the formula used. Even if you could reach 850 on one type of score, you might not reach it on another score or hold that high number for long.
Usually you need an installment loan like a mortgage or car loan to get the score closer to 850. Borrowing money just to improve your score may make sense if you’re just starting out or trying to fix a bad loan, but not in your situation.
If you’re determined to get higher scores, consider using even less of your available balance. Top scorers typically use less than 10% of the credit limits on their cards. The balance relevant for credit scoring calculations is usually your bank statement. So, one way to reduce the load can be to make a payment right before the statement is finalized. Just make sure to pay the balance before the due date to avoid late fees.
Home profit of surviving spouse
Dear Liz: If a surviving spouse sells the couple’s long-term home, are there special provisions for the long-term capital gains?
Answer: When a spouse dies, their half of the home acquires a new tax value. The value is “upgraded” to the current market value, so that the increase in value of this half of the property is no longer taxable. In co-ownership states, both halves of ownership receive this level.
Let’s say a couple bought a house for $100,000 and it was worth $250,000 when the first spouse died. In most states, the tax base – which is subtracted from net selling price to determine potentially taxable capital gains – would increase from the original $100,000 to $175,000. The surviving spouse’s base would remain at $50,000, while the deceased’s half would be increased to $125,000 (half of the current value of $250,000). If the home were sold for $250,000, there would be $75,000 in potential taxable capital gains.
In community-owned states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — the home’s base would receive a double top-up to $250,000. If the house were sold for $250,000, there would be no potential taxable capital gain.
Even if there is a gain on the sale, an individual can exclude up to $250,000 in capital gains from home sales from their income as long as they have owned and lived in the home for at least two of the past five years. Couples can exclude up to $500,000. However, widows and widowers who sell their homes within two years of the death of their spouse can claim the full $500,000 exclusion.
Social Security benefit for survivors
Dear Liz: If you are talking about a survivor receiving 50% of their spouse’s Social Security benefit, is the 50% based on gross or net income?
Answer: The survivor’s pension is up to 100% of what the deceased spouse or ex-spouse received before tax from Social Security. If the spouse or ex starts Social Security sooner, it reduces the potential survivor’s benefit. If the spouse or ex delays Social Security past full retirement age, it can increase the benefit.
Spousal benefits, on the other hand, are paid during the lifetime of the spouse or ex-partner. Spouse benefits can be up to 50% of what the spouse or ex-spouse would receive at full retirement age.
Liz Weston, Certified Financial Planner, is a personal finance columnist at NerdWallet. Questions can be directed to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, USA, or through the “Contact Us” form on asklizweston.com.