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Dear Liz: We are trying to refinance a mortgage. All mortgage lenders say that checking our credit scores will not affect the scores. However, this is not true. Which give? The three credit bureaus all list “too many inquiries” and penalize us. Does calling them do any good or make it worse?
Reply: Checking your own scores is considered a soft inquiry which has no effect on your scores. When a lender checks your scores, there might be a little ding, but credit scoring formulas also have a feature that reduces the effect when shopping for a mortgage.
Essentially, all mortgage applications made within a certain period of time are grouped together and counted as one. In addition, the formulas ignore any mortgage application made within the previous 30 days. The length of time you can shop varies depending on the credit scoring formula, so it’s usually a good idea to focus your shopping on a two-week period.
What you don’t want to do when looking for a mortgage is apply for another loan. These applications are not combined with your mortgage loan applications. The effect of these surveys wears off quickly and is usually quite small – typically 5 points or less for FICO scores, for example. But even a small swipe could make you pay more interest if your scores aren’t already great.
Dear Liz: I was referred to a response you wrote in 2017 explaining the Social Security windfall elimination provision. It was the clearest explanation I have seen. I get a government pension and a reduced social security check from the provision and I am now okay with how it went, thanks to your post.
Reply: Many people are understandably upset that their social security benefits are reduced when they receive a pension from a job that has not contributed to the social security system. Understanding why this is happening can help. Here’s a reprint of the 2017 question and answer:
Dear Liz: I am a teacher in a public school and plan to retire after 25 years of service. I had previously worked and contributed to Social Security for about 20 years. My partner has contributed to Social Security for over 30 years. Will I be penalized for not paying social security contributions while teaching? If my wife dies before I do, will I get survivor benefits or will the windfall elimination act take them away? It’s so confusing!
Reply: This is confusing, but you have to understand that the rules regarding the elimination of windfall profits (along with a related provision, compensation for government pensions) are not designed to take a benefit from you that others get. Rather, the rules are set so that people who receive government pensions – which are usually more generous than Social Security – don’t end up with much more Social Security money than those who have contributed. to the system throughout their working life.
Here is how it can happen.
Social Security benefits are progressive, meaning that they are designed to replace a higher percentage of income from lower income than from higher income. If you don’t contribute to the system for many years – because you’re in a job that provides a government pension instead – your annual Social Security earnings would be reported as zeros in those years. Social Security is based on your best paid 35 years, so all of those zeros would make it look like you’ve earned less (often much lower) lifetime income than you actually have.
Without any adjustment, you would end up with a larger Social Security check than someone who earned the same income in the private sector and paid significantly more Social Security taxes. It was this inequity that led Congress to create the deal elimination provision decades ago.
People who receive government pensions could also end up with a lot more money when a spouse dies. If a couple receives two Social Security checks, the survivor gets the higher of the two when a spouse dies. The household does not continue to receive the two checks.
Without government pension compensation, someone like you would get both a pension and a full survivor’s check. Again, this could leave you much better off than someone who paid more into the system.
Liz Weston, Certified Financial Planner, is Personal Finance Columnist for NerdWallet. 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.
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