Keeping your credit score in good standing is important for getting a loan and getting lower interest rates on credit. But how do they affect Social Security?
Can your credit score affect Social Security benefits? The answer may surprise you
Tens of millions of Americans receive Social Security benefits each month, the majority of these payments go to those go to individuals claiming retirement benefits.
Even in retirement, maintaining a good credit score is important to get a loan and receive a lower interest rate on credit. Fortunately, your credit score has nothing to do with how your Social Security benefit is determined.
However, having outstanding unpaid debt can affect how much you actually receive from the Social Security Administration each month. Here is what Social Security recipients should know about debts and their benefits.
Can my benefits be garnished?
Although credit scores aren’t a concern for Americans related to Social Security payments, having outstanding debt could have consequences.
The US government generally views federal payments as untouchable by creditors unless the debt is to the government itself. If you owe back taxes or owe money to the federal government, the federal government can step in and garnish up to 15% of your Social Security payments.
The same rule applies to federal student loan payments, while court-ordered alimony or child support payments can be garnished up to 65%. A few years back, The Wall Street Journal produced a short video explaining the impact on seniors who were having student loan debt deducted from their Social Security benefits. The number of retirees with student debt is expected to increase, considering the balance has increased significantly for Gen Xers and Millennials.
Creditors do not have direct access to Social Secuirty benefits
Usually other creditors don’t have the right to take your Social Security payments, but there are some exceptions, such as any transfer of your Social Security money to a separate bank account or if you don’t spend it within two months after receipt. In these cases, the benefit may be placed within reach of creditors. We recommend that you consult an attorney for more information.
In some instances, if the SSA determines that you are unable to manage your finances, they may appoint a representative payee to receive and manage your Social Security benefits on your behalf. In this situation, the SSA may conduct a background check on the potential representative payee, which could include reviewing their credit history as part of the assessment process.
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