Could a Universal Social Security Benefit Actually Work?

The average senior on Social Security will collect $1,543 a month next year, but some beneficiaries will get a lot less, and many will get more. There’s a special formula that goes into calculating benefits, but ultimately, the monthly payouts seniors receive are based on their individual wage histories. A group called the Heritage Foundation, however, wants to change that. The organization is proposing a universal Social Security benefit for all seniors rather than basing benefits on individual earnings. It’s an interesting idea — but could it really work?

The same benefit for everyone

As one might expect, higher earners are generally entitled to more robust Social Security benefits than lower earners despite needing the money less. The goal of universal benefits would be to level the playing field among retirees and give low-income seniors a much-needed boost.

a close up of electronics: Social Security card

This type of proposal could also potentially reduce the amount of Social Security tax workers are forced to pay on their wages. Right now, 12.4% of wages of up to $137,700 ($142,800 in 2021) go to fund Social Security. Self-employed individuals pay the entire 12.4% tax, while those who work for other companies split that tab with their employers, each paying 6.2%. It’s estimated that a universal retirement benefit could slash that 12.4% tax rate down to 10%, leaving workers to fork over less of their money up front. For a household with a median income, that amounts to an extra $1,580 a year.

Gallery: Don’t Fall for These 15 Credit Score Myths (The Motley Fool)

Protect your credit health

An excellent credit scorestyle=”text-decoration: underline”> is something anyone can achieve. Persistent credit myths, however, might be preventing you from reaching a higher credit tier. Even worse, they might even be pushing your score down.

When it comes to your credit, you’re the best person to keep it in good condition. The more you know, the easier it will be to take the reins on your credit. And the better your credit is, the easier it will be to get the financing you need at the best possible price.

We rounded up the most common credit myths so we could give you the facts that blow them out of the water.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

1. You need many credit cards to have a great credit score

Fact: The number of credit cardsstyle=”text-decoration: underline”> and other accounts you have is far less important than the way you use them.

To have a credit score, you need only one account that has been open for at least six months and one account that has been reported to the credit bureaus. (Also, there should be no indication of “deceased” on your credit report, even if it refers to someone else with whom you share a joint account.) Both of the basic requirements can be satisfied by the same account.

People with credit scores in the excellent range — above 750 — have an average of three open cards.

2. Employers can check your credit score

Fact: Employers don’t see your credit score, but they can see some of the information on your credit report.

Some employers do run a credit check, and if they do, they will see a limited version of your credit report. This report shows your identifying information, your credit accounts, your payment history, and whether any accounts are in collections. An employer cannot see your balances, your account numbers, or your spouse’s data. An employer credit check won’t affect your credit score.

California, Connecticut, Illinois, and Maryland prohibit or restrict the use of credit data by employers.

3. Income is a factor in your credit score

Fact: Income is not a factor in your credit score, nor is the amount of money you have in the bank.

Your FICO® Score and VantageScore® are made up of five primary factors. They are:

Payment history
Debt utilization and your available credit
Inquiries or new accounts
Age of credit
Credit mix (different types of credit accounts, such as installment loans and revolving credit)

4. Social media is a factor in your credit score

Fact: In the U.S., social media accounts are not reviewed or considered by credit reporting agencies and do not factor into your score.

The only factors in your credit score are those mentioned above. Other factors that don’t affect your credit score include your race, ethnicity, occupation, religion, location of your residence, marital status, gender, nationality, or age.

Social media accounts may be considered under other circumstances, though, such as when you apply for certain jobs or for a government security clearance.

5. Checking your credit hurts your credit score

Fact: Only hard inquiries have the potential to lower your score. Soft inquiries have no effect.

Checking your own credit is a soft inquiry. Other examples include:

A credit card issuer checks your credit without your permission in order to pre-approve you for an offer.
You apply for pre-approval with an online lender that promises a soft inquiry.
A creditor you already do business with checks your credit for marketing purposes or account review.
A current or potential employer checks your credit with your authorization.

Whenever you apply for credit or a credit limit increase, that will result in a hard inquiry and your score could temporarily drop by a couple of points.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

6. Paying off a collection automatically removes it from your credit report

Fact: Collection accounts often change hands and have the potential to slip through the cracks.

Paid-off collections do not hurt your credit score. But sometimes collection accounts are not removed from your credit report promptly after you pay them off. When you pay off a collection, keep records and monitor your credit reports, and if it isn’t updated properly, dispute the account with the credit bureau reporting it.

7. You have one credit score

Fact: Most consumers have dozens of credit scores.

Several different versions of the FICO® scorestyle=”text-decoration: underline”> are in use today. The most current is FICO® 10. Auto lenders typically use FICO® Auto Score 8, while credit card issuers use FICO® Bankcard Score 8. Mortgage lenders want to see FICO® Score 2, 4, or 5.

That’s not to mention VantageScore®, the other major scoring model, and its variations. Or the many lesser-known credit reporting agencies that analyze your data for different purposes, like bank account screening, property insurance, or even gaming.

8. Your credit reports are all the same

Fact: Credit reports usually have overlapping information but can differ from one another.

Creditors are not required to report to all three major credit bureaus, even though many do. If a creditor only submits data to one, your account will show up on that report but not the others. Also, one credit report might have an error that is not present on the others.

9. You have to pay to see your credit score

Fact: Anyone can get their FICO® score and VantageScore® for free.

Discover Scorecard offers a free FICO® score to anyone, even if you don’t have a Discover card. Some banks and credit card issuers offer free FICO® scores to their customers. Check your statement or your online dashboard. VantageScores® are what you’ll usually get from the many websites online that offer free credit scores.

10. You have to pay for your credit reports

Fact: You can request one free copy of your credit report every 12 months from each credit reporting agency.

The only website authorized to provide the free credit reports you are entitled to by law is AnnualCreditReport.com.

Bonus: Because of the pandemic, you can get a free credit report from each agency every week until April 2021.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

11. Spouses have a joint credit report

Fact: Your credit history and credit score are yours and yours alone.

Credit files don’t merge when two people get married, even if you get a joint bank account. One spouse’s bad credit doesn’t affect the other spouse’s score. Spouses who change their name don’t get a new credit history.

What can happen is that you open a joint credit account, such as a mortgagestyle=”text-decoration: underline”>, which then shows up on both of your credit reports.

Likewise, divorce doesn’t remove joint accounts from your credit report, nor does it absolve you of financial responsibility for any account in your name.

12. You can’t have a great credit score if you don’t have debt

Fact: Your credit score measures how you handle debt, not how much you have.

People with excellent credit scores tend to use very little of their available credit. You can build a great credit scorestyle=”text-decoration: underline”> by using a credit card and paying it off by the due date every month.

On the flip side, don’t assume that you have a perfect credit score if you completely avoid credit accounts. Ironically, if you always avoid credit, you may not have a credit score at all. That’s because the credit bureaus have no data to measure to assign you a score.

13. Closing an account makes your credit score drop (or rise)

Fact: Closed accounts continue to affect your credit score for seven to 10 years.

Accounts closed in good standing stay on your credit report for up to 10 years.

If you close an account that is delinquent, the negative item will remain on your credit report for seven years past the date of delinquency. After the negative item is removed, the account will remain on your credit history for three more years, with only the positive payment history reported.

14. You can build credit with a prepaid card or a debit card

Fact: Prepaid cards and debit cards almost never factor into your credit score.

Even if your debit card has a Mastercard or Visa logo and can be run as credit at the register, the payment history and balance are not reported to the credit bureaus.

One way this can change: if your bank account has a negative balance that eventually becomes a collection account, it will show up on your credit report.

15. You can’t get a credit card or loan if you have bad credit

Fact: Many credit products are designed for people with bad credit.

You can pay a refundable deposit to open a secured credit card. The card works just like any other credit card. The deposit is held in case you default, and returned after a period of responsible account use.

A credit builder loan helps you grow your savings. You won’t get the loan funds until the loan is repaid. Instead, the money waits in a savings accountstyle=”text-decoration: underline”> while you make monthly payments for the loan term. The account is reported as an installment loan, and once the loan is paid off, you get access to the funds in the account.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Anyone can achieve great credit

Now that you know more about your credit score, you can take steps to improve it (and keep it healthy). If your credit score has room for improvement, be proactive. Check your credit reports regularly. Pay your bills on time every month. Avoid running up balances. Anyone can build an excellent credit score by using credit products responsibly.

17/17 SLIDES

Could a universal benefit work?

The above proposal makes one big assumption — that Social Security won’t start running out of money. Right now, the program’s trust funds are set to expire within the next 15 years, and once that happens, benefit cuts will be on the table. In theory, though, it’s possible to implement a universal Social Security benefit even if that payout starts at a lower baseline.

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But then there’s the backlash that could easily ensue if higher earners start paying more Social Security taxes only to wind up with the same retirement benefit as their counterparts who pay a lot less. Even if the Social Security tax rate is reduced to 10%, a worker who earns $120,000 a year for 20 years will pay more into the program than someone who earns $20,000 a year for that same timeframe.

Of course, ironically, the current tax setup is said to favor higher earners because once the annual wage cap is reached, the wealthy are let off the hook on Social Security taxes altogether. But still, the idea of a single, universal benefit may not sit well with lawmakers or their more influential constituents.

Either way, it’s clear that low-earning seniors who rely on Social Security for the bulk (or, in some cases, all) of their retirement income are, generally speaking, having a hard time financially, especially with benefits losing buyer power by the year. A universal benefit is an interesting concept for lawmakers to think about, but whether it’s feasible in practice is yet to be determined.

The Motley Fool has a disclosure policy.

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Protect your credit health

1. You need many credit cards to have a great credit score

2. Employers can check your credit score

3. Income is a factor in your credit score

4. Social media is a factor in your credit score

5. Checking your credit hurts your credit score

6. Paying off a collection automatically removes it from your credit report

7. You have one credit score

8. Your credit reports are all the same

9. You have to pay to see your credit score

10. You have to pay for your credit reports

11. Spouses have a joint credit report

12. You can’t have a great credit score if you don’t have debt

13. Closing an account makes your credit score drop (or rise)

14. You can build credit with a prepaid card or a debit card

15. You can’t get a credit card or loan if you have bad credit

Anyone can achieve great credit

The goal: Enable Black, Indigenous and individuals of shade obtain residence

The same benefit for everyone

Protect your credit health

1. You need many credit cards to have a great credit score

2. Employers can check your credit score

3. Income is a factor in your credit score

4. Social media is a factor in your credit score

5. Checking your credit hurts your credit score

6. Paying off a collection automatically removes it from your credit report

7. You have one credit score

8. Your credit reports are all the same

9. You have to pay to see your credit score

10. You have to pay for your credit reports

11. Spouses have a joint credit report

12. You can’t have a great credit score if you don’t have debt

13. Closing an account makes your credit score drop (or rise)

14. You can build credit with a prepaid card or a debit card

15. You can’t get a credit card or loan if you have bad credit

Anyone can achieve great credit

Could a universal benefit work?

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