Dear Liz: Our credit scores are in the low 800s. We always pay off all credit card balances before the next billing period. We are currently booking a cruise for us, our daughter and her husband. We are concerned about using too much of our available credit and therefore lowering our credit scores. We use a credit card and pay half of the balance this billing period and the remainder in the next billing period. I have never been able to calculate “credit utilization” but I am sure we will exceed it over the next two months even though we will pay the amount charged in full. With this large charge, can you suggest anything else we can do?

Reply: Your credit utilization is simply the amount of available credit you are using. If your card has a limit of $10,000 and you earn $5,000 in charges, your credit utilization ratio is 50%. (If you’re not sure what your credit limit is, you can check your account online or call the number on the back of your card and ask.)

In general, the less available credit you use, the better.

The balance that matters for credit scoring purposes is the balance that is reported to the credit reporting agencies, and that is what you generally owe as of the closing date of your statement.

Making a payment just before the statement closes can help reduce the use of your credit. Some people make payments every week, or even more frequently, to keep their utilization in single digits.

However, if you don’t plan on applying for a new credit card or loan, you probably don’t need to worry about a temporary change in your credit scores because they’re already so high. Your scores will probably still be pretty good and will pick up once you pay off the balance.

Estate taxes on household legacies

Dear Liz: He recently wrote about the capital gains tax implications when someone sells a home they’ve been given, versus one they’ve inherited. Could you elaborate on the estate ramifications for the donor if that person has a large estate? Would his estate pay tax on the gift?

Reply: Few people have to worry about gift or inheritance taxes, for reasons that will become obvious in a moment. But large gifts can potentially reduce the amount a wealthy donor can leave his heirs tax-free after his death.

This is because the gift and inheritance tax systems are combined. Gifts in excess of the annual exclusion amount, which in 2023 is $17,000 per recipient, reduce the giver’s lifetime gift and estate tax exemption, which in 2023 is $12,920,000.

Let’s say a donor gives a $1 million house to a friend. The amount in excess of the $17,000 annual limit, or $983,000, is deducted from the donor’s lifetime limit. If the donor were to die in 2023, the amount of the donor’s estate in excess of $11,937.00 would be subject to estate tax. (Donors only owe gift tax after they give so much that they exhaust that lifetime limit.)

Receiving assets as a gift also means that the recipient may face more taxes than if they had inherited the property.

The previous column mentioned that when someone inherits a home, the home’s taxable income is “increased” to the current market value. That means the appreciation that occurred during the lifetime of the previous owner is not taxable.

If someone receives a house from a living donor, different rules apply. There is no increase in value. The recipient gets the donor’s taxable income, which is typically what the donor paid for the home, plus any qualifying improvements.

When the home is sold, that basis is deducted from the income to determine the potentially taxable gain. The recipient could face capital gains taxes on appreciation that occurred since the original owner purchased the home.

On the other hand, giving away assets during your lifetime is a way to control the size of a potentially taxable estate, says Los Angeles estate planning attorney Burton Mitchell. Once the house is given away, for example, its future appreciation will not add to the donor’s estate.

Anyone with a large enough estate to worry about these taxes should, of course, consult an estate planning attorney about the best strategies for their situation.

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