When a lower credit score might not be a cause for concern

Dear Liz: I sold my house, paid off my mortgage, then got a new mortgage for another house in 2021. When I applied for the new mortgage, my credit score was 830. After buying the house, my score fell to 700. It only increased by 2 points in seven months. I have no other debt. What is going on?

Responnse: Remember, you don’t have just one credit score, you have many. When you apply for a mortgage, you’re usually shown three older-generation FICO scores — one from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Your interest rate would have been based on the middle number. If your scores were 840, 830, and 700, for example, your rate would be based on 830. Any score above 740 generally gets the best rate and terms for a mortgage, all else being equal.

The score you are currently monitoring was probably created from a different score template. If the score is a FICO score, it was likely created from an updated formula such as FICO 8 or FICO 9. You may also be viewing a VantageScore 3.0 or 4.0. VantageScore is a competitor to FICO.

If you’ve been watching the same score from the start and it’s actually dropped 100 points since you applied, then something else is going on. Please check your credit reports with all three bureaus and look for missed payments, collections, or other serious issues.

Where to park money?

Dear Liz: I turned 72 in December and received my first required minimum distribution. In order to buy a property next year, should I put the funds – $6,000 – into my Roth IRA or just put them into my savings bank account? Also, should I convert my traditional IRA to Roth or leave it alone?

Responnse: To contribute to an IRA or Roth IRA, you must have earned income such as wages, salaries, or self-employment income. If you have no earned income, your contribution would be considered an over-contribution which could result in a 6% penalty for each year the money remained in the account.

You don’t have to work to convert a traditional IRA to a Roth, but there’s usually not much reason to do so at this point unless you intend the money to go to your heirs and that you want to pay income taxes rather than have them. do it. Even then, you should take this idea to a tax professional or financial planner, as conversions can create other problems, such as higher health insurance premiums.

HELOC situation improves

Dear Liz:Your recommendation to a retired couple to consider a home equity line of credit to pay for home repairs surprised me. According to the media, HELOCs are becoming increasingly difficult to find. The banks that still offer them have become stricter. And offering a reverse mortgage to a couple who only needs $10,000, I think, is not the best option for them.

Responnse: Lenders tightened their requirements for HELOCs after the pandemic began, and some stopped offering them entirely. But the situation is beginning to improve, thanks to rising home equity and a generally strong economy.

The spouse of the original letter writer had offered to use a low rate credit card to pay for a new furnace and water heater. Using a low-rate card isn’t a bad option if the balance can be paid off quickly, but it could get expensive otherwise. Low fares are usually teaser fares that expire after a certain period. The couple could then try to transfer the balance to another low-rate card, but there is no guarantee that they would be approved for such a balance transfer or that they would obtain a large enough credit limit.

You’re absolutely right that a reverse mortgage wouldn’t be a good fit if the couple only needed $10,000, but the letter writer said they had little savings . A reverse mortgage or line of credit could provide an ongoing source of funds for those who have few other options.

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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