Credit score

How a card change affects your credit score

Dear Liz: I have an American Express card and two Visa cards, all of which I have owned for many years. I was notified that my American Express card was being converted to a Visa card. I don’t want a third Visa card but I have no choice. For credit score purposes, will this conversion show up as closing my old card and requesting a new one? Obviously, closing a long-standing credit card and applying for a new one will affect my excellent credit score which is 830. If I decided to apply for a new American Express card, what impact would that have- it on my score?

To respond: Conversions from one issuer to another may have a temporary negative impact on your credit ratings as one account is closed and another opened. The effect should be minor as long as you have other accounts open and active.

In a month or two, the new account should show the same history as the old one and your scores should recover. (By the way, you have more than one credit score, and your scores change all the time. As long as they’re generally above 760 or so, you should get the best rates and terms from lenders.)

The type of card generally matters less than the benefits associated with the card. If these benefits are valuable to you and are enough to offset the annual fee, consider keeping the card. Its long history and credit limit probably help your scores.

That doesn’t mean you have to keep a card you really don’t want. However, the fewer cards you have, the more careful you have to be when closing one.

You can always add an American Express or other card to your wallet. Adding a new card usually reduces your scores to less than five points. The effect is temporary and the new account could contribute positively to your scores over time.

Social Security and the tax torpedo

Dear Liz: People are generally advised to wait as long as possible (full retirement age or later) to take Social Security to maximize benefits. If a couple has low expenses and substantial pensions, wouldn’t it make sense to take Social Security earlier, to preserve retirement funds to pass on to their heirs? Social Security payments stop on death, while pension accounts pass to heirs.

To respond: If your primary concern is preserving an inheritance, maximizing your Social Security payments could help reduce the amount you need to withdraw from retirement funds over the long term.

Starting early could also make you more vulnerable to what’s known as the tax torpedo, which is a sharp rise in marginal tax rates due to the way Social Security is taxed when someone receives other income. . People who only get Social Security don’t face the torpedo, and high-income people probably can’t avoid it, but middle-income people may be able to soften the blow by delaying Security social welfare and drawing instead on their retirement funds.

One way to preserve heirs’ assets is to convert traditional retirement accounts to Roth IRAs. This requires paying taxes on conversions, but then you won’t face the required minimum distributions on Roth accounts.

Calculating the best course can be difficult. You can pay between $20 and $40 to use sophisticated claims software such as Social security solutions or Maximize my social security to model various options or consider consulting a paid advisor.

Long term care insurance

Dear Liz: I would appreciate your thoughts on long term care insurance programs. Ours has just announced a 52% rate increase with a possible 25% increase next year. While I realize that none of us can predict the future, can you suggest any guidelines for deciding if, for example, a healthy 80 year old needs the maximum 10 year coverage or can get by with three-year coverage. one year coverage period?

To respond: Most people over 65 will need long-term care, but most will need it for less than three years. You may want to err on the side of caution and opt for a longer coverage period if you have a family history of dementia.

Liz Weston, Certified Financial Planner, is a personal finance columnist for Nerd Wallet. 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.