How to build credit history and not turn ‘credit invisible’

Dear Liz: After reading that people were “credit invisible”, I wonder if I should have a credit card to create a payment history. I am 67 years old and I am on social security. I thought having guaranteed income and no outstanding debt would be attractive to a potential landlord when applying for an apartment, but maybe that’s not the case. What do you recommend?

Answer: According to the Consumer Financial Protection Bureau, approximately 1 in 10 American adults have no credit history and are considered “invisible credit.” Without a credit history, many common financial transactions can become more difficult or expensive, including renting an apartment. Landlords often check credit reports or credit scores or both when evaluating potential tenants.

You can use the free site AnnualCreditReport.com to see if you have credit reports from the three major credit bureaus. (Be sure to type “annualcreditreport.com” into your browser, as using a search engine can bring up many similar sites that will try to charge you for credit monitoring and other services. If you are asks for a credit card, you are on the wrong site.)

If you don’t have a credit history, there are several ways to start building one.

Perhaps the quickest way is to ask someone with good credit to add you as an authorized user on one of their credit cards.

Another good option is a credit builder loan, which is offered by some credit unions and online lenders. The money you borrow is usually placed in a savings account or certificate of deposit that you can claim once you’ve made all monthly payments.

Finally, there are secured credit cards that give you a line of credit usually equal to the amount you deposit with the issuing bank. Ideally, you’d be able to switch to a regular, unsecured card in about a year.

When to start Social Security

Dear Liz: I’m confused by your answer to the question about starting Social Security too soon. You wrote that someone who decides they made a mistake can suspend the benefit once they reach full retirement age. From the description, it looks like there is no penalty for this option, so everyone should do it! It sounds too good to be true, so I (and maybe others) may be misinterpreting that. It looks like you get the early benefit from age 62 at full retirement age and then the full deferred benefit at age 70.

Answer: Keep in mind that your Social Security benefit is permanently reduced when you start it early. The earlier you start, the bigger the discount.

Social Security allows you to suspend your benefits once you reach full retirement age (currently between 66 and 67). While suspended, your benefit will receive Deferred Retirement Credits that will increase your checks by 8% each year until age 70. Your benefit also continues to receive cost-of-living adjustments, whether or not you are currently receiving it.

A suspension can help you offset some of the reduction you suffered by starting early, but you’ll never get as much as if you waited until age 70 to apply.

Service in online banks

Dear Liz: You recently wrote about online banking versus brick and mortar, but you missed a point in favor of local banks. If there is a major mistake, you can go there and talk to someone. It’s better than being stuck in an endless phone loop or with a useless “bot” online. And being face to face (pleasantly) is more likely to get help and sympathy.

Answer: Banks vary enormously in the quality of their service. Some online banks pride themselves on quickly connecting their customers to well-trained human representatives around the clock. Meanwhile, some local banks have indifferent staff and inconvenient hours.

But we can agree that chatbots – computer programs supposed to answer common customer questions – often provide a truly awful user experience. Any bank that refuses to put you in contact with a human being on simple request is a bank to be avoided.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, #238, Studio City, CA 91604, or by using the “Contact” form on asklizweston.com.

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