Ask Liz Weston

Dear Liz: I am 20 and trying to build my credit. I rented an apartment for a year, and I bought a car last year but needed a cosigner to get the loan. It seems like none of this is factoring into my credit score, because I can’t get a credit card! I applied for one through my credit union and was denied.

Is there any other credit card I can get besides a secured card needing a deposit? I want to refinance my car to get the cosigner’s name off it, but if I have zero credit I’m not sure I’ll be able to.

Answer: You’re right that your apartment rental probably isn’t being factored into your scores. Landlords typically don’t report rental payments to the credit bureaus. But your car loan should be helping build your credit as long as it’s being reported to the bureaus and you’re making every payment on time.

The fact is, building credit when you’re young is tough — and it’s about to get tougher for people under 21, because of new restrictions on credit card issuers that just went into effect.

The Credit Card Accountability, Responsibility and Disclosure Act requires issuers to make sure people under 21 have an independent source of income before giving them a card. If the applicants don’t, they’ll need an adult cosigner.

But credit card issuers were tightening their standards even before the CARD Act was passed last year. Even credit unions, which traditionally have been easier places to get credit, raised their standards for who could get a card.

So unless you can find someone to add you to an existing card as an authorized user, or who is willing to cosign an account to make you a joint account holder, a secured card is probably your best bet.

You’ll want a card that reports to all three credit bureaus and that has an annual fee under $75. You can find offers at CardRatings.com, CreditCards.com, LowCards.com and the Index Credit Cards site

Dear Liz: I would like to give my three children monetary gifts they can use for college or a car. I understand that I can give them up to $13,000 as a nontaxable gift. Is that correct? How would I file the tax return, and would I be allowed to pay the tax on their gift?

Answer: It sounds like you’re misunderstanding how the gift tax works.

You could give your kids a monetary gift of any size, and it wouldn’t be taxable to them. But it could have gift tax implications for you.

If you give more than $13,000 to any one person, you’re supposed to file a gift tax return (IRS Form 709) noting the fact. Any amount over $13,000 per person per year is deducted from your lifetime gift tax exemption, currently $1 million. Once you’ve used up that exemption, you would owe tax on any later gifts in excess of $13,000 per person (or whatever the annual exemption is then). You’d have to be really generous to ever pay a tax.

Dear Liz: What is the best source for a free credit report with no strings attached (that is, you’re not required to sign up for credit monitoring or other offers)?

Answer: The one and only site to get your free, federally mandated look at your credit reports is AnnualCreditReport.com. There are plenty of look-alike sites that try to fool you, so make sure you get to the right one.

Also, be aware that you’re entitled only to free credit reports, not free credit scores. If you want to see the FICO scores that lenders use, you will have to buy those at the MyFICO site. If you want to see free credit scores that aren’t FICOs but that give you some idea of where you stand with lenders, visit the Credit Karma site.

A rising personal savings rate indicates we’re doing better at putting money aside, but we have a long way to go. A survey released today jointly by the Consumer Federation of American, the Financial Services Roundtable and the Employee Benefit Research Institute shows many American families not only lack savings–they lack a savings account.

Taking data from the latest Federal Reserve Survey of Consumer Finances, they found:

• Less than one-third (32%) of low-income households – bottom quintile with incomes below $18,900 in 2007 – have savings or money market accounts.
• Less than one-half (48%) of moderate-income households – second quintile with incomes $18,900-33,899 – have savings or money market accounts.
• Even less than three-fifths (58%) of middle-income households – third quintile with incomes $33,899-53,599 – have an account.
• But 80% of upper-income households – highest quintile with income above $89,300 – have an account.

The three groups are trying to promote automatic savings–a worthy goal. And their press release includes a handy guide to banks that are currently offering savings promotions. I’m including it here, plus a couple of suggestions of my own:

1. Fifth Third Bank provides a double interest bonus to those who meet a goal in the Goal Setter Savings.

2. U.S. Bank offers a $50 Rewards Card for the first $1,000 in savings and another $50 Rewards Card if that balance is maintained for a year in its S.T.A.R.T. Savings Today and Rewards Tomorrow program.

3. SunTrust, in its Get Started Savings Program that in March will become its Live Solid Savings, offers a 1.5% rate for two months and a 2% anniversary bonus (up to $50) as well as free overdraft protection for those agreeing to automatically transfer at least $25 monthly to savings.

4. Regions, in its LifeGreen Savings, provides a 1% interest rate bonus if automatic deposits are made for 12 months.

5. BBVA Compass, in its Build My Savings^SM, will match, on an annual basis, up to 6% of a customer’s monthly automatic savings transfer amount. This program will be launching in April.

6. Bank of America, in its Keep the Change program, rounds up debit card purchases and transfers the difference from checking to savings where it provides a 100% match for three months then matches 5% a year (up to $250/year).

7. The Way2Save® account, created by Wachovia, will be offered to Wells Fargo customers in the future. It’s a savings account that can be linked to checking, turning purchases into automatic savings by transferring $1 from checking to the Way2Save® account each time you make a check card purchase or use bill pay.

(Liz’s note: With both these programs, make sure you have true overdraft protection, not bounce protection, since they can increase the risk of overdrafts.)

8. Union Bank offering a $25 bonus to those opening a new savings account.

And now my two additions:

9. ING Direct has a refer-a-friend program that currently gives the new account opener $25 and the referrer $20. UPDATE: ING Direct just announced it’s also offering a $25 account bonus to new customers who open an account with the special reference code “AMSAVES2.”

10. Check out your local credit union. Savings bonuses abound. First Entertainment Credit Union in Los Angeles, for example, is currently offering 7% interest on the first $500 you save. Check out FindACreditUnion.com to check out the CUs in your area.

On Monday–the day the final portions of credit card reform go into effect–CreditCards.com is hosting a live town hall meeting with White House economic adviser Austan Goolsbee about the sweeping changes authorized by the new law.

You can ask questions during the event, which starts at 2 p.m. Eastern, or submit them in advance at www.creditcards.com/askthewhitehouse. You can also submit questions via Twitter using the hashtag #cardlaw.

I hope you’ll tune into this event. I also hope Goolsbee or someone else at the event will dispute the widespread notion that credit card reform somehow triggered the Great Credit Slamdown we’ve been seeing lately, with issuers raising interest rates, lowering limits and closing accounts. That was well underway before Congress even began considering the CARD Act, as you can read in my February 2008 column, “The credit card party is officially over.”

Dear Liz: I’m doing all the right things: accumulating an emergency fund, contributing to retirement funds and paying down the mortgage. I currently save about $12,000 of my $90,000 annual salary. Beyond this, how do I take the right steps to large wealth accumulation, as in $3 million to $5 million?

Answer: You’re already on your way. If you bump up your retirement contributions by at least the rate of inflation each year and earn an 8% average annual return over time, you should hit $3 million in about 35 years.

If you want to accumulate your fortune faster, you should save more, achieve a better-than-average investment return, or both.

If you’re serious about accumulating wealth, get a copy of “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. The authors outline how people really get rich in the U.S.: by living well below their means and making saving and investing a priority. Many of them also have their own businesses. The risk of failure for small businesses is high, but those who succeed keep more of the upside than those who work for someone else.

Stanley and Danko repeatedly make the point that the millionaires they studied were more interested in building wealth than in displaying high-status trappings. They tend not to drive fancy cars, wear expensive watches or spend a fortune on clothes. In his most recent book, “Stop Acting Rich,” Stanley makes the point that millionaires also tend to spend modestly on homes: Few have more than one, and most choose houses and neighborhoods that are easily affordable, rather than a strain on their finances.

These books can provide you a road map for your own path to wealth and provide inspiration for the journey.

Dear Liz: Lots of “credit card remedies” are being marketed now. Is debt settlement a reasonable way to reduce debt? I have a good track record of payments and good credit scores (my median FICO score is 745). I’m concerned I’ll damage my creditworthiness for years to come.

Answer: Debt settlement means you’re paying less than you owe — and creditors really don’t like that. Debt settlement can trash your credit, which is why it isn’t a good option if you can find other ways of dealing with your debt.

If your interest rates are relatively low and you can easily make your minimum payments, your best bet is to simply pay off the debt on your own, throwing as much money as possible at your highest-rate card while paying the minimums on your other debt. Once your highest-rate debt has been retired, you can apply that payment to your next highest-rate debt, and so on until you’re debt free.

Or you can transfer your debts to a fixed-rate personal loan and pay that off over time. Many credit unions offer three-year personal loans at rates of 10% to 15% to people with good credit.

If you’re struggling to make your minimum payments, you should arrange two appointments: one with a legitimate credit counselor (you can get referrals from the National Foundation for Credit Counseling at www.nfcc.org) and another with a bankruptcy attorney.

The credit counselor may be able to put you on a debt management program to pay off your debt at lower interest rates. Credit counseling is a neutral factor in credit scoring formulas — neither helping nor hurting — but your creditors may report you as late, which could hurt your scores.

Bankruptcy would really trash your scores, driving them down into the 500s. But it could wipe out your debt and give you a fresh start if you aren’t able to pay your bills.

What you want to avoid, if possible, is raiding retirement funds or home equity to pay credit card debt, particularly if bankruptcy may be an option. Retirement funds are protected in Bankruptcy Court and so, in many cases, is home equity.

The authors of a new personal finance book make a perfectly accurate, and perfectly ironic, observation about money advice today—which is that most of it seems geared to people with steady paychecks, ignoring freelancers and the self-employed.

Joseph D’Agnese and Denise Kiernan have written a terrific new guide, “The Money Book for Freelancers, Part-Timers and the Self-Employed,” to address that gap. More on that in a minute.

The reason most advice assumes traditional employment is that most workers (about 75%) are, in fact, traditionally employed, working for a company that pays them at regular intervals. But that leaves quite a few who don’t have traditional jobs, including (here comes the irony) a lot of the people writing that personal finance advice.

I’m self-employed. So is Kathy Kristof of MarketWatch. So is Ilyce Glink of ThinkGlink.com. All the big guns—Suze, Dave, David, Robert—are self-employed. So are many of the best personal finance bloggers who, even if they haven’t yet left their day jobs, are typically earning money on the side.

So we all know the pain of paying for all our own benefits, saving for retirement without a match, irregular incomes, estimated tax payments and clients who don’t pay or pay late. Yet too often that experience isn’t reflected in what we write.

Of course, the best advice is universal. Live below your means. Track your spending. Save for the future. Know your goals and have a plan to get there. But how you get there is going to be a little different when you’re on your own.

Once they cover the basics of organizing your finances, estimating your future income and figuring out where your money is going, The Money Book’s authors have some great suggestions. One of them is to save a percentage of each check you receive for taxes, retirement and emergencies, rather than saving a set dollar amount each month for those goals. With irregular incomes, your dollar amount may be too big one month and too little the next. (Ideally, you’ll be saving 25% to 30% to cover taxes, 10% to 15% for retirement and maybe 5% for your emergency fund. That may seem like a lot, but the tax portion at least is about what an employer would slice out of a regular paycheck.)

That’s just the start of their good advice. If you’re self-employed or your income is irregular, I’d strongly encourage you to pick up this book.

Student loan lender Sallie Mae will provide experts to answer your questions about filing out the Free Application for Federal Student Aid (FAFSA) during a live chat Thursday night, from 9 p.m. to 10 p.m. Eastern. To submit a question in advance or join the chat, visit www.SallieMae.com/FAFSA.

You’ll also find brief how-to videos to learn what documents you need to complete the aid form, get answers to commonly-asked questions and explore the next steps in the financial aid process.

Another great resource is FinAid.org. The site has a FAFSA calculator that can estimate your expected family contribution as well as tons of information about the financial aid process.

Washington, D.C.-area residents are encountering long lines and bare shelves at their local groceries as the snow delays shipments and encourages hoarding.

Jim Wang of Bargaineering (@bargainr) tweeted:

wife just went to the local grocery store (Giant) and they’re sold out of everything. no meat, no produce, nothing left. snow wins, we dead

I’m sure the situation there will ease soon, but there’s nothing like a well-stocked pantry to give you some piece of mind and help you through a disaster, natural or otherwise, as I wrote in “The emergency fund you can eat.” Having lived in earthquake country my whole life–and being the daughter of a woman born during the Depression–I’ve always felt more comfortable when we have at least a two-week supply of food in the house.

You can follow the link above to read my whole game plan for creating a two-week food emergency fund, but here are some highlights:

Stock food you’ll actually eat. Forget the C rations. Think about the meals you usually prepare and what goes into them, and stock up on those foods. Consider substitutes for perishables, such as canned fruit for fresh, but again–ONLY BUY WHAT YOU’LL EAT. If nobody will touch dried milk, you’re wasting money by buying it. Better to freeze a couple of gallons of milk instead.

Stock up on sale. Trying to create a well-stocked pantry in one visit to the grocery store will cost a fortune. Instead, build your food EF over time, taking advantage of grocery sales and coupons.

Don’t forget water. One gallon per person per day should be stocked somewhere in your house.

Rotate. Don’t let your food EF go bad. Patrol your pantry and freezer so you can use up your supplies before they expire and replace them with newer items. There are charts in the column showing you how long various foods will last on the shelf and in the freezer.