FINANCIALconnection
Ask Suze
Orman
Also:
■ Following your 401(k)
■ Paying off a mortgage
E-mail your personal-
finance questions to:
suze@costco.com.
Please include
“Suze Orman Q&A”
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Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088.
Getting due credit
Suze will answer
selected questions in
this bimonthly column.
She regrets that
unpublished questions
cannot be answered
individually.
By Suze Orman
I am 69 years old, female, retired and receiving a state pension and Social Security.
I paid off my condo mortgage 15 years ago,
and am now renting it out while I live with
and care for my mother in her home, which
is also paid off. I have three credit cards and
always pay off the entire balance. I have no
outstanding debts. I received my credit score
last month, and it had gone down from three
years ago. I called the credit score company
and was told my score went down because,
as I have not had a loan for so many years,
there is no information as to whether I could
handle loan payments. Does that explanation make sense?
Susan B.
Honolulu, HI
of the company; it is managed by a third party on
behalf of the company. The performance of your
401(k) is dependent on the investments you have
chosen for the account; if you invest in stocks, there
is the chance of losses from time to time.
If you will not need that money for at least 10
years—and preferably more—then you should still
have exposure to stocks. How much? It depends on
a lot of factors, but a very general rule of thumb is to
subtract your age from 100; that’s the percentage
you might want to keep in stocks. If the mutual
funds offered in the 401(k) aren’t super low cost, I
recommend that your husband roll over the 401(k)
to a discount brokerage or no-load mutual fund
company and then he will be able to invest the
account in any low-cost mutual funds or exchange-traded funds.
Suze Orman’s TV
show airs Saturday
nights on CNBC. Suze
can be contacted at
www.suzeorman.com.
NOPE. JUST 10 PERCENT of your FICO credit
score is based on your mix of credit, so it’s a pretty
small factor. Besides, plenty of people who have
never had a loan have great FICO credit scores of
720 or higher. (The scale is 300 to 850; any score of
720 or more typically puts you in the driver’s seat for
great deals.) It was your FICO score you checked,
right? While other firms offer credit scores that use
different formulas, it is the FICO score that is most
often checked by lenders and businesses, so that’s
the one that matters. If your FICO credit score is at
least 720, I say relax. You’re just fine.
If it’s lower than 720, you want to work to get
it higher. The two biggest bangs for your buck: Pay
down your balances and always pay your bills on
time (even if it is just the minimum due). Those two
moves play a major role in determining your
FICO score. (Timely bill payment is 35 percent
of your score. Low balances relative to your total
available credit are 30 percent of your score. So
that’s 65 percent of your score you can work to
improve.) To learn more, go to
www.myfico.
com and click on the credit education tab.
Full disclosure: I have a business relation-
ship with FICO: Suze Orman’s FICO Kit.
But I do not receive one penny when anyone
buys a FICO score.
We are retired, in our mid-70s. Our total
assets amount to about $280,000. We receive
$2,300 per month in combined Social Security payments. We are considering paying off
our adjustable-rate mortgage (ARM), which
has a balance of $238,000 and a present
payment of $1,250 per month. Our monthly
expenses without the mortgage are about
$1,700. What do you advise?
Alex G.
Lake Forest, CA
A year ago, my husband’s company
closed after 20 years of service.
Our 401(k) is still in the company,
and it’s losing money. What should
we do?
I THINK PAYING OFF your mortgage could make
a lot of sense. My first concern when I am asked this
question is how much someone will have left in an
emergency fund after paying off the mortgage; it is
mandatory to still have ample liquid assets. As you
know, I advise maintaining an emergency fund to
cover eight months of living expenses. That would
be $13,600 based on your $1,700 in non-mortgage
costs. But given that your Social Security income
would cover all your monthly expenses and then
some, I am not that worried. So assuming you
intend to stay in that home for as long as possible
and it does not need much repair, and you have savings tucked away at a federally insured bank or
credit union, you pass that test. It could also make a
lot of sense to get out of your ARM now, depending
on what type of adjustable loan it is. If you face a
higher payment when it resets, that’s another motivation to get it paid off. C
Florence E.
Elk Grove, CA
LET’S CLARIFY a few things.
The 401(k) is actually not a part
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