Auto-paying bills can raise credit scores but lacks flexibility

Q. I appreciated your recent column about how people can increase their credit score. However, you failed to mention how they can raise their score by simply signing up for automatic-bill-pay services with their bank. Doing so ensures that their bills will always be paid on time, which will push their credit score even higher.

A. You are correct. For those who sign up for an automatic-bill-pay system, their mortgage or other debt payments will automatically be deducted from their checking or savings account and may gradually bolster their credit score.

The problem I have, though, is that automatic-bill-paying systems don’t provide much flexibility in difficult financial times.

To illustrate, when my two children were in elementary school and my then-wife wasn’t working, I agreed to an auto-pay plan with my bank to debit my account for the mortgage payment on the first of each month, and the utilities to be paid on the 10th. The plan would save me $8 a month in the bank’s checking fees and provide a few other perks, which seemed like a good deal at the time.

The problem was, unexpected bills soon came up. My son needed expensive braces, my ex needed surgery that was only partially covered by insurance, and the transmission in my car died. But the bank kept debiting my account for the mortgage on the first of each month — even though it wasn’t delinquent until the 15th — and automatically hitting my account for the gas and electric bills while I struggled to reach a new repayment plan with my creditors.

Meantime, I was charged nearly $100 in late fees each month because I didn’t have enough money in my account to make those auto-pay agreements, which made our finances even worse. My credit score sank. It took a few months to bring my pastdue bills current, but it took much longer to recover my good credit score.

I haven’t signed up for any type of auto-pay plan since.

Q. My mother died in 2018, and my father passed away two weeks ago. I was their only child and have been willed their house, which is mortgage-free and worth about $320,000. Will I owe federal estate taxes on my inheritance?

A. Probably not. I am deeply sorry for the loss of both your mom and dad. In a way, though, the Internal Revenue Service will help to ease your pain: Current federal law won’t tax you unless your inheritance is worth more than $11.58 million.

It’s important to note, though, that 12 states and the District of Columbia charge an estate tax that’s lower than the federal limit, and six more may charge a tax, regardless of the amount that is received.

There are a lot of legal and accounting issues involved here, so talk to a lawyer and tax professional for details.

Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231, and we’ll try to respond in a future column.