Q: I’m trying to improve my credit score, but a friend of mine said that I should keep my old credit card accounts open. Is she right? — Ashleigh (via Twitter)
A: Ashleigh, your friend is correct. The average age of your credit card accounts does have an impact on your credit score. So even if you have a card that you never use, and there is no outstanding balance, go ahead and keep that account open. As it ages, it will improve your score. If you’re afraid that having that open account will tempt you to use the card, you might consider locking your card away to remove the temptation.
That said, make sure to weigh the positive effect of having the cards open against any fees that you might incur. If you’re paying any kind of annual fee, low balance fee, a fee for not using the card (yes, this exists), etc., then that account might not the right one to keep open. You can ask your credit card company to close your account to new balances while you pay off any balance currently on the card. Again though, watch out for additional fees if you utilize this option.
It is important to note that simply cutting up or throwing away your old cards doesn’t close your accounts. If anything, it may make things worse, because not only do you run the risk of incurring additional fees, but now the card is gone so you no longer think about it.
If you’re really looking for the best ways to improve your credit score, it’s helpful to know what causes your score to change. While there is no uniform algorithm for calculating credit scores amount the various agencies, the factors that affect your score are the same from one agency to another. The only thing that changes is the scope of the impact. So paying your bills on time, not causing too many credit inquires, etc., will help all your credit scores. They just help one score more or less than another. Another option not often thought about is to try to get credit for making non-credit card payments on-time, such as utility and cell phone bills. Call any of the big three credit agencies for information on how to have those payments considered in your score.
Q: I’m thinking about pre-paying for my funeral expenses, but I’m not sure the best way to do that. Any thoughts on a good process? — Olivia (via email)
A: Olivia, good for you for planning ahead like that! While there are several reasons to plan for these costs now, there are two main reasons that I think are crucial for everyone to consider. First, you’re obviously removing some hassle for your family. And second, you’re saving the cost to your children or your estate later.
Once you’ve made the major decisions that impact price (particularly cremation versus burial), you may want to go ahead and plan the rest of the service too, just for fun. What music should be played? Who should speak? Who should your pall-bearers be? Maybe even go ahead and write your obituary, or even record a message that you would like to have played at your service. There are a wide variety of pre-planning documents available at no cost on the internet, or at some financial advisory firms. And then you can start considering how you’re going to pay.
Depending on your age, and how far in advance all the planning is being done, you might just start putting some money into a dedicated account now and then. Another choice used by many is to buy a small life insurance policy.
Now it may seem easiest to just buy a pre-paid plan from a funeral home. And I’m not going to tell you not to do that. However, if you shell out the money now, you’re not earning any interest on it. Plus, the funeral home may not still be in business by the time you pass away. And what happens if you decide to move to Idaho to be closer to family after you retire? It may make more sense just to set the money aside for now to give yourself a bit more flexibility should you need it later. Good luck!
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— Eric Litwiller has spent the last eight years of his professional career helping people achieve their financial goals through the use of budgets, retirement vehicles and estate planning options. He is a firm believer in the importance of using earthly riches to fulfill a mission of Christian stewardship. Eric is not a licensed financial planner.