Paid-off mortgage may not help scores
Dear Liz: I have a problem everyone would probably like. I just paid off my house early. The previous owner carried the mortgage. What is the best way to have it appear in my credit reports that I own my home free and clear, as the loan has never been reported to them? We did have a contract drawn up for the loan and I have records of all payments including the extra amounts I paid to close the loan out early.
Answer: You probably can’t do what you want to do. Even if you could, it might not do as much good as you might think.
Lenders must be subscribing members of a credit bureau in order to report information to it, and that’s an expensive proposition — well beyond the means of most individuals who carry a mortgage for a buyer.
Having a mortgage on your credit reports typically does help your credit scores, but having a paid-off loan doesn’t necessarily give you a big boost. Owning your home free and clear is good for your wallet and your psyche, but it’s not a big factor in your credit scores.
Missing your statement? You still have to pay the bill
Dear Liz: Last year, I signed up to view my credit card account online. I did not realize that they would stop paper billing. My other credit card accounts didn’t stop paper bills when I signed up for their online access. I rotate my credit card use and sometimes don’t use one for long periods of time, so I didn’t realize I had some charges on this particular card that went unpaid (about $5 worth). The issuer contacted me about the delinquency for the first time four months later and I paid the balance, including late fees, over the phone. I found out later that issuer had already canceled my account and lowered my once-800-plus credit score by 80 points. The company has done nothing despite multiple contacts. It seems they would have an obligation to contact me about the delinquency prior to closing the account for nonpayment. The funny thing is they did not close another credit card I have with them.
Answer: Your credit card issuers don’t have an obligation to make sure you know that you aren’t paying your bills. And your issuer didn’t lower your credit score; those four months of late payments did the job.
The reality is that you are responsible for paying your bills, whether or not you get a paper statement. (When you signed up for online access, by the way, you also had the option of electing e-mail alerts that would let you know when a due date was approaching and a payment hadn’t been made. Those alerts are a good thing.)
Rather than vent your outrage, you might want to be a bit contrite when you contact the chief executive of your credit card company to ask for his or her help in fixing this mishap. Explain that you didn’t realize you were ending paper bills when you signed up for online access and point out your long history of on-time payments. Ask if the CEO would consider “rehabilitating” your account to remove the late payments, which were clearly an oversight. (The $5 initial balance should make it clear that it wasn’t a lack of funds that prevented you from paying your bill.)
In this case, asking for help may work better than demanding it. The card issuer played by the rules; you were the one who messed up.
New due date math for credit cards
Dear Liz: I thought I read in your column that credit card companies must now allow 45 days’ notice for people to make their payments. I received my credit card bill on April 3 and the due date is was April 13. In order to pay on time, I must would have had to mail it by April 6 or 7, which only gives gave me only 3 or 4 days’ notice. What’s up with that?
Answer: You’re confusing two different parts of the Credit Card Accountability, Responsibility and Disclosure Act.
One part of the CARD Act requires issuers to give their customers 45 days’ advance notice of significant changes to their accounts, such as interest rate charges or new fees.
Another part of the act mandates that issuers mail or deliver your bill at least 21 days before your payment is due. If your bill was mailed by mid-March, the issuer has followed the law, even if the statement was subsequently delayed in the mail.
If you have evidence that the bill was mailed too late, such as a stamp cancellation with a later date, you can complain first to the issuer’s customer service department and then to the issuer’s regulator. Nationally chartered banks are regulated by the Office of the Comptroller of the Currency. State-chartered banks are regulated by the bank’s home state, and American Express is regulated by the Federal Deposit Insurance Corp.
In general, though, you shouldn’t rely on paper statements to trigger you to make payments, since mail delays aren’t uncommon and you’re supposed to pay your bills on time, whether or not you get the statement. Instead, add your bill due dates to your calendar — the CARD Act now requires your credit card due date be the same day each month — and make sure to mail your payment at least a week in advance. You can check your credit card website to see how much is due, or set up e-mail alerts to tell you your balance. Better yet, set up automatic payments so that at least your minimum payment is debited from your checking account on the due date.
How to repair your trashed credit
Dear Liz: I always had good credit until I lost my home in foreclosure and then I lost my job. I am working again but I went from a salary of $60,000 a year plus bonuses to a salary of $20,000. My credit is messed all and still I cannot pay my credit cards. What do you recommend for me to get back on track financially?
Answer: You can’t fix your credit until you fix your finances, and your first step is deciding what to do about your cards.
If your credit is “messed up” and your credit scores are low, you probably can’t consolidate this debt into a lower-cost loan—which is often the best option for people with good credit, since credit unions currently offer 3-year debt consolidation loans with rates under 10%.
A visit with a legitimate credit counselor (you can get referrals at www.nfcc.org) will determine whether you have enough income to pay off your cards over five years or so through a debt management plan, which typically lowers the interest rate you pay.
You also should visit a bankruptcy attorney to see whether filing for Chapter 7 liquidation is an option. If not, you may want to talk to the attorney about settling your debts for less than you owe.
Once you’ve visited both the credit counselor and the bankruptcy attorney, you’ll be able to make more informed decision.
After the debt is paid, erased or settled, you can begin to rebuild your credit. Until then, your efforts won’t come to much, since your inability to pay your credit cards will continue to erode your credit scores.
Credit card forgiveness results in a big tax bill
Dear Liz: My husband racked up more than $17,000 in credit card debt and negotiated a settlement for $4,000 last year. We received a 1099-C form for $13,000 of forgiven debt, which we have to claim as income. That puts our modified adjusted gross income over the threshold of being able to claim tuition and college expense deductions for our three kids and myself. We now owe more than $11,000 in taxes and we don’t have the cash to pay. Any advice would be greatly appreciated.
Answer: You may think owing an $11,000 tax bill because you saved $13,000 on a credit bill is bad enough. But the ironies just keep coming.
For many people, the best way to pay an IRS bill when they don’t have the cash is often by credit card or a bank loan such as a home equity line of credit. As the IRS puts it, “The interest rate and any applicable fees charged by a bank or credit card are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code.”
Given your situation, though, you may not have access to a low-rate loan. If not, you’ll need to work something out with the IRS.
If you owe less than $25,000, you can file online for a short-term (120 days) extension or a longer-term installment plan. The IRS penalty for nonpayment is 0.5% a month and the interest rate is 4% a year, or a combined rate of around 10% a year. There is a one-time fee of $105 for installment agreements, although that can be lowered to $52 if you agree to a direct debit from your checking account.
You’ll find more information at http://www.irs.gov/taxtopics/tc202.html.
Whatever you do, don’t use this problem as an excuse not to file your tax return, since the failure-to-file penalty (5% a month) is 10 times as much as the failure-to-pay penalty.
