Blind faith in TV advertisers can cost you

Dear Liz: I need help. I am getting ripped off by a company that advertises on television. The company bills your credit card for stuff you didn’t order. They need to be exposed and stopped. Can you help me? They don’t even have an email address to contact, and they seem to be ruthless. How can they be allowed to advertise on TV and fool the public? It is sick! I tried to cancel and they said it was already shipped.

Answer: You have far more faith in television advertisers than you should. Just about anyone can buy advertising time, including scam artists, as long as their check to the station or channel doesn’t bounce.

Call your credit card company and let it know you’ve been scammed. Then create a paper trail: Follow up with a written letter asking that the charges be removed, your account closed and a new account opened with different numbers, since the scammer may try charging you again.

In the future, you should regard all advertisers, whatever the medium, with skepticism. If you’re purchasing from a company for the first time, at a minimum you should research its return policy and make sure it has multiple ways to be contacted in case there’s a problem. An Internet search that combines the company’s name with the word “scam” also can be illuminating.

Like elephants, some card companies never forget

Dear Liz: I was recently solicited by a credit card company. I didn’t need another credit card, but this offered airlines miles that I collect, so I applied. They didn’t approve the application because: “You have filed for bankruptcy and your previous account(s) with us was included in that filing. This includes any of your accounts issued by (us) such as Visa, MasterCard, store cards or gas cards.” Liz, the bankruptcy was 12 years ago, and I am very well financially situated now. I thought there was an expiration date on bankruptcies appearing on your credit report.

Answer: There is. Bankruptcies have to be removed from your credit reports after 10 years.

Individual lenders, though, are allowed to have much longer memories. And some have opted not to forget. If you ever file a bankruptcy that wipes out debt on one of the accounts they issue, they may never again approve you for credit. That’s perfectly legal.

Not all lenders are so unforgiving, of course, and those who don’t know about your bankruptcy likely will be perfectly willing to extend you credit as long as your credit scores are good. But you’re probably wasting your time trying to induce this once-spurned lender to change its mind.

Don’t use retirement savings to pay credit card debt

Dear Liz: I had to retire because of illness at 44. I have $30,000 in credit card debt. Should I use the $24,000 in my 401(k) to pay off the majority of that debt? The payments are $1,000 a month. My wife and I can afford the payments, as we have a combined gross income of $120,000. But we hate to think we’ll be paying forever and, worse yet, what we’ll pay in interest over time. A home equity loan is out of the question since we only have about $50,000. What should we do?

Answer: Don’t use retirement funds to pay off credit cards. Period.

If it pains you to think about the interest you’re paying, good. That may keep you from running up more debt.

But you’ll pay a lot more in the long run by raiding your retirement fund. First, you’ll lose one-third or more of your savings ($8,000 or more) to taxes and penalties. Then you’ll lose all the future, tax-deferred returns your 401(k) could have earned. You can figure that the $24,000 will easily cost you more than $100,000 in lost future retirement income.

A better approach is to cut your expenses so you can put more money toward paying off your debt. An extra $500 a month could shave a year or more off the time you’re in debt and save you a considerable amount in interest.

Sometimes it’s okay to close a credit card

Dear Liz: When our daughter turned 18, I was able to get her a credit card with a $750 limit by opening the account myself, with her named as an authorized user. I did not plan to use the credit card myself and did not. We were then able to order her a credit card with her name on it. She used the card for five years, paying the balance each month. When she graduated from college, the same credit card company offered her a rewards card with a $3,000 limit in her name only, leaving me off the account. This was just as I planned it. Now she wants to close the account with the $750 limit that was opened five years ago. Will this hurt anyone’s credit scores? Neither one of us plans to ever use this account again.

Answer: Closing accounts can’t help your credit scores and may hurt them. But if both of you have good scores (FICOs of 740 or above) and other open credit accounts, then canceling this account shouldn’t have disastrous effects on your scores.

High credit scores give you the upper hand with card issuers

Dear Liz: I’m frustrated. A Visa card we’ve had since 1996 now has an annual percentage rate of 18.24%. When I questioned the card issuer about it, the phone representative blew me off, saying it’s automatically reviewed and adjusted every six months. We paid it and our other credit cards off two years ago. Our only debt is our mortgage ($179,000 on a $500,000 home). I went to MyFico.com and found one of my FICO scores is 801. What’s wrong with this picture?

Answer: It’s not entirely clear why you care what the interest rate on the card is, if you’re not carrying a balance. Whether the card charges 18.24% or 1.824% makes no difference to your bottom line.

If you’re objecting on principle, you should know that credit card companies can charge pretty much any interest rate they want. The good news is that you have plenty of options if you want a card with a better rate. The average credit card interest rate is somewhere around 16%. Many issuers offer single-digit teaser rates to people like yourself who have high credit scores. You can check out sites such as CardRatings.com CreditCards.com and NerdWallet.com to find lower-rate cards.

Since your issuer refused to lower your rate when asked, it either doesn’t think you’ll bolt to another credit card company or doesn’t care if you do.