Social Security retirement benefits may not provide sufficient funds to cover major expenses, even if you’ve paid off your mortgage by the time you retire. However, you might wonder how these benefits impact your credit score. Fortunately, there’s no need to worry because retirement typically does not have a negative effect on your credit score.
Concerns about the future of Social Security are a significant concern for many Americans. In fact, a survey of 1,806 individuals conducted between May and June found that 75% of people aged 50 and older fear that Social Security funds will deplete during their lifetimes. Although the future of Social Security remains uncertain, experts suggest that there are steps individuals can take to maximize their benefits.
Is It Possible for My Benefits to Be Subject to Garnishment?
While credit scores may not directly affect Social Security payments for Americans, having unresolved debt can lead to certain repercussions. Typically, federal payments, including Social Security, are considered protected from creditor actions, except when the debt is owed to the government. If you have outstanding tax liabilities or owe money to federal agencies, the government does have the authority to garnish a maximum of 15% of your Social Security payments.
Typically, most creditors do not possess the authority to access your Social Security payments. However, there are exceptions, such as when you transfer your Social Security funds to a separate bank account or fail to utilize them within two months of receipt. Under these circumstances, your benefits may become vulnerable to creditors. We strongly advise seeking legal counsel for comprehensive information on this matter.
In certain cases, if the Social Security Administration (SSA) determines that you are unable to handle your finances, they may appoint a representative payee to receive and manage your Social Security benefits on your behalf. During this process, the SSA may conduct a background check on the potential representative payee, which may include an assessment of their credit history.
Actions to Safeguard Your Credit Score While Receiving Social Security Retirement Benefits
This uncertainty regarding Social Security’s future is occurring at a time when more Americans are relying on the program as their primary source of income. According to Nationwide’s latest retirement survey, 21% of respondents rely solely on Social Security benefits, up from 13% in 2014. Meanwhile, only 31% of respondents reported having pension income, a decline from 48% a decade ago.
It’s worth noting that while receiving Social Security benefits, certain actions could potentially lower your credit score. Therefore, it’s essential to be aware of what to avoid in order to maintain a healthy credit score during your retirement. Ensure Timely Payment of Bills and Debts to Maintain Your Credit Score. Failing to make payments on time can result in a decrease in your credit score. Therefore, it’s crucial to regularly monitor your bank account balance to ensure you have sufficient funds for necessary payments.
Maintain a Positive Credit Card Usage Pattern for a Reliable Credit History. Demonstrating responsible credit card usage is essential to establish yourself as a trustworthy cardholder. Otherwise, your credit card issuers may lack recent activity to assess.
Furthermore, refrain from closing your credit card accounts, as some seniors mistakenly believe it’s the best approach while relying on Social Security income. Surprisingly, it can be beneficial to keep your credit cards active during retirement. This allows lenders to gather more information about your financial management at this stage. If you need a credit report, don’t hesitate to request one.
Stick to your monthly budget and avoid maxing out your credit card balances. Aim to utilize only a portion, approximately 20%, to maintain a healthy credit score. While some seniors dip into their retirement savings for significant expenses, it’s wiser to allocate these funds gradually to supplement your Social Security income over time.
What happens if I owe federal agencies but also receive Social Security benefits?
If you owe money to federal agencies and receive Social Security benefits, certain actions may be taken to recover the debt.
For tax debt, the Internal Revenue Service (IRS) can take a portion of your Social Security benefits to pay down the debt. The IRS can take up to 15% of your Social Security benefits each time you receive them and apply the amount toward your tax debt through the Federal Payment Levy Program. Before the garnishment can start, the IRS must attempt to contact you in writing regarding your debt and give you an opportunity to make other payment arrangements.
If you owe federal student loan debt, the government can withhold Social Security benefits. Up to 15 percent of your benefits may be garnished. However, before this takes place, the loan servicer must provide you with 30 days notice of the impending action.
It’s important to note that most Social Security income is protected from creditors even after it arrives in your bank account. However, for certain types of debt, such as back taxes or unpaid child support, these protections may not apply. In these cases, if a creditor could garnish your ongoing Social Security payments, that creditor can likely also levy Social Security income from your bank account.