Finance

Can Poor Credit Score Hurt Your Social Security Benefits?

Social Security: Will Poor Credit Hurt Your Benefits as a worker or businessman? This is one question most people ask their financial advisors. Reason is because, if you’re like most American citizen, you’re probably want to have life steady income from Social Security after you retire from service.

The United States Social Security Administration usually updates the estimated benefits you will receive annually. They give out this information, so that by the time you retire, you can have the knowledge of how much money you’ll be getting as your retirement pay.

But in some rare occasion, your poor credit score can have a negative impact on the amount that you’ll actually be getting in your savings checking account. Secondly, in same unfortunate scenarios, you may even get some deductions or entirely lose your payment even after it drops into your account. Truly for most citizens, this isn’t actually a concern to them. But if you know that you have bad credit history or outstanding debts with any credit card company, make sure you completely rectify it before you face a surprising reality after retirement age.

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The Good News: There is (Generally) No Impact

Now, let’s talk about the good news about social security. According to American laws, your Social Security is considered a federal payment that is protected from creditors. This is in the vast majority of cases. Therefore, even if you have $50,000 in credit card debt with any issuer, as far as you are not defaulting in making the minimum payments, there is no problem. No financial institution can come after your federal payments as a retiree. In most cases, even if you were to miss your credit card debt payment, your creditors still couldn’t pursue your Social Security. But there are, however, some certain cases in which even your Social Security may be tiered.

The Bad News: Certain Unpaid Debts Can Result in Garnishment

The are laws set by the U.S. government which considers federal payments unreachable from creditors – except the government itself is the creditor. This simply means that; if you owe the federal government money or otherwise owe back taxes, it may step in and garnish as much as 15% of your Social Security payments. In fact, the same generally applies if you default on repayment of federal student loan. Bear in mind that child support or Court-ordered alimony payments may cause a deduction as much as 50-65% of your Social Security payments.

In general terms, other private creditors, such as collections agencies, repo companies etc don’t have the right to take your Social Security payments no matter what. Notwithstanding, do not forget that there are some legal exceptions that may expose your Social Security payments to garnishment. A good example is this explanation below;

“Your money can sometimes be fair game for creditors to collect with a court judgment for garnishment if you transfer your Social Security money to a separate bank account or don’t spend it within two months of receipt”.

All these can sometimes get very confusing for you. Therefore, it’s best to consult with an attorney if you find yourself in this situation to clear yourself legally.

Q: Does Your Credit Score Impact the Amount That You Receive From Social Security?

Research shows that your credit score has no direct linkage on the amount of money that you receive from Social Security payment. Going by the calculation for your Social Security payments, it all depends on two strong factors:

  1. The amount that you earn over your lifetime and
  2. The age at which you file for benefits.

In either case, whether your credit score is 540 or 850, it doesn’t have any connection on the calculation of your Social Security benefit. You can verify this claim. Of course, that being said, it is possible that you will have a low credit score if you are working in a low-paying job/company. Why? This is because, it will be more difficult for you to pay off your pending debts. Also, if you’re working in a low-paying organisation, you’ll only be able to earn a smaller Social Security benefit altogether. Therefore, have it in your thoughts that there is no direct relationship between your credit score and your Social Security benefit. However, there is sometimes a relationship connecting them both.

Below are other similar posts to guide you further.

The Bottom Line

On the contrary, a bad credit score is not really a problem you have to worry about the issue of receiving your Social Security payments from the government. It is your bad financial behaviors that makes it worse. Personal behaviours such as failing to remit your student loans, taxes, consumer credit, alimony, child support etc – may end-up in your Social Security benefits being garnished.

In addition, there is also a strong relationship between lower income and lower credit scores. For example, if the salary you earn is a small income, it means your Social Security benefit will also be small as well. With that info, even though your credit won’t directly affect your Social Security payments, there is this indirect correlation. Lastly, if you’re struggling to make ends meet, as many people do it’s a good idea to discuss your options properly. Simply approach your creditors and/or a financial counselor before you create a long-term problem. You can check online for guides on how to get a credit score without a Social Security number. More tips on Social Security Benefits are available here. Best of luck.

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