Will bad credit hurt your benefits?

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If you’re like most Americans, you’re probably looking forward to a lifetime of guaranteed Social Security income after you retire. Each year, the Social Security Administration updates the estimated benefits you will receive so that when you retire, you can have a pretty good idea of ​​how much you will receive.

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But in rare circumstances, your poor credit can impact how much you actually receive in your checking account – and in really unfortunate cases, you can lose part of your payment even after you receive it. For most Americans, that’s not a problem, but if you have bad credit or unpaid debt, you should work to rectify that before you face a startling post-retirement reality.

The good news: there is (usually) no impact

Let’s start with the good news – in the vast majority of cases, your Social Security is considered a creditor-protected federal payment. Even if you have $100,000 in credit card debt, as long as you make at least the minimum payments, you won’t have to worry about anyone coming after your federal payments. In fact, even if you were to default on your credit card debt, in most cases your creditors still couldn’t sue your Social Security. However, there are some cases where even your Social Security can be attached.

The bad news: some unpaid debts can lead to garnishment

The US government generally considers federal payments untouchable by creditors – unless the government itself is the creditor. If you owe back taxes or otherwise owe money to the federal government, it can step in and garnish up to 15% of your Social Security payments. The same applies if you are in default on a federal student loan. Alimony or court-ordered child support can cover up to 50% to 65% of your Social Security payments.

Generally speaking, other creditors, such as collection agencies, do not have the right to collect your Social Security payments. But there are tricky legal exceptions that can expose your payments to garnishment. For example, if you transfer your Social Security money to a separate bank account or don’t spend it within two months of receiving it, that money can sometimes be fair game for creditors with a garnishee judgment. stop. As this area can get confusing legally, it is best to consult a lawyer if you find yourself in this situation.

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Does your credit score impact how much you receive from Social Security?

Your credit score has no direct bearing on the amount of money you receive from Social Security. The calculation of your Social Security payments depends on two factors: how much you earn over your lifetime and the age at which you file for benefits. Whether your credit score is 540 or 850 will not affect your Social Security benefit calculation. Of course, that being said, you’re more likely to have a low credit score if you’re in a low-paying job, as it can be harder to pay off your debts. and if you’re in a low-paying job, you’ll also generate a smaller Social Security benefit. So while there is no direct relationship between your credit score and your Social Security benefit, there is often a correlation between the two.

The essential

A bad credit score is not something you need to worry about when it comes to receiving your Social Security payments. But bad financial behavior — such as falling behind on your taxes, alimony, child support, student loans, or even consumer credit — can lead to seizure of your Social Security. There is also a clear correlation between lower credit scores and lower income. If you earn a lower income, that means your Social Security benefits will also be lower. So while your credit won’t directly affect your Social Security payments, there is that indirect connection. If you’re struggling to make ends meet, it’s a good idea to discuss your options with your creditors and/or a financial advisor before creating a long-term problem.

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This article originally appeared on GOBankingRates.com: Social Security: Will Bad Credit Hurt Your Benefits?

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