How an unexpected credit score drop could signal a serious problem

Dear Liz: I pay off each of my credit card purchases online, usually within a few days. My monthly statement balance is usually $0 even though I use the card frequently. The card is my only open credit account. I saw my credit score recently and it has dipped below 650. It used to be over 800 several years ago. Is my diligence hurting my score? Should I wait to pay off my card until the statement posts? Is there another way to improve my credit?

Answer: A drop that drastic may indicate a more serious problem, such as a late payment or a collection account. Please check your credit reports at all three credit bureaus at AnnualCreditReport.com. (Enter the exact name in your browser as there are many look-alike sites that will try to charge you for what should be free access to your reports. If you’re asked for a credit card number, you’re on the wrong site.) Unexpected credit score drops can be an indication of fraud, so do this as soon as possible.

If you don’t see anything suspicious, then you probably can blame your habit of leaving a zero balance and having only one card. You don’t have to carry credit card debt to have good scores, but a small balance on the statement closing date helps indicate to credit scoring formulas that you are actively using your account. You can and should pay the balance off in full before the due date to avoid interest charges. Adding another credit account or two should further strengthen your scores.

You didn’t mention which score you saw (you have many) or where you got it, but consider monitoring at least one of your scores so you can gauge your progress. Banks and credit card companies often offer free scores. If yours don’t, consider signing up for another service that offers free scores. Discover, for example, offers free FICO scores to everyone, not just its own customers.

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Living trust setup costs

Dear Liz: A friend of mine contacted an estate planning attorney to do a living trust. The attorney gave her an estimate of $5,900 for this job. My friend is single, never married, no children, does not own property or a business. She has no complex financial situations. She does have a financial planner, who she works with on her investments and retirement funds. I am also thinking of doing a living trust with an attorney, and my situation is similar to my friend’s — very simple. However, I can’t afford $6,000 to do a trust or will. Is this a reasonable cost for a simple estate? It seems high to me; should it be more in the range of $2,500?

Answer: Your friend’s experience is why many people put off estate planning or opt for do-it-yourself solutions when they would really benefit from an experienced attorney’s advice.

Let’s start with this: Not everyone needs a living trust. Living trusts are designed to avoid probate, the court process used to settle estates. But probate isn’t a huge hassle in many states. Even in states where probate is notoriously slow and expensive, such as California, there are simplified processes for smaller estates. Plus, there are a number of ways other than a living trust to avoid probate, including pay-on-death designations for financial accounts and, in many states, transfer-on-death options for vehicles and real estate.

Living trusts have other advantages: They’re typically private, whereas wills must be made public after death. And living trusts usually include a relatively easy way to have someone else make decisions for you if you’re incapacitated. But you can set up something similar by creating powers of attorney for healthcare and finances. Those documents, plus a will, typically cost less than $1,000.

There are self-help legal options online that allow you to create estate plans yourself, and some give you access to attorneys for help. Ideally, though, you would find a lawyer who would charge a reasonable fee to review your situation, offer you personalized advice and draft the necessary documents for you. If you’re having trouble finding someone, ask a tax pro or financial planner for recommendations. If finances are a consideration, avoid law firms with big fancy offices in expensive urban centers and look for those with more modest overhead in outlying areas.

All that said, the amount your friend was quoted could make sense if she has a lot of money. Even without real estate investments, substantial wealth will require substantial estate planning, and that comes with a substantial price tag.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.