Q&A: Credit alert or phishing scam?

Dear Liz: I received a notice from one of my credit card companies stating that they had noticed something amiss in my credit, though not related to their card. The notice suggested I check my credit reports, which I did. Nothing showed up on the reports that was of concern. What else should I do to ensure my credit stays secure?

Answer: Vague “alerts” are a hallmark of phishing emails that are trying to get you to reveal personal information.

If you followed a link in an email to view your credit reports or accessed them on any site other than www.annualcreditreport.com, you may well have handed your Social Security number and other vital data to an identity thief.

If that’s the case, you should freeze your credit reports to prevent the thief from opening new accounts in your name. You might want to do that anyway, given the prevalence and severity of recent database breaches.

Q&A: A husband’s death. A pile of bills. Now what?

Dear Liz: After my husband died, I was in shock and really not in my right mind for at least a year, but really more. During this time I didn’t pay attention to bills. Only the ones that were getting shut off got paid. Now I’m behind on several credit cards that I’ve had for years. I can’t keep up anymore, but I don’t know what to do.

Answer: It’s natural in your situation to be overwhelmed and not know where to start. Your first task should be determining if you can realistically pay what you owe.

If your unsecured personal debt — credit cards, medical bills, payday loans and personal loans — equals half or more of your income, then you may not be able to dig yourself out. If that’s the case, consider making appointments with a credit counselor and a bankruptcy attorney to review your options. You can get referrals from the National Foundation for Credit Counseling at www.nfcc.org or (800) 388-2227 and the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org.

Even if your debts don’t total half your income, you may find it helpful to discuss your situation with a credit counselor or an accredited financial counselor (referrals from the Assn. for Financial Counseling and Planning Education at www.afcpe.org). These counselors can review your situation and help you craft a plan to get your finances back on solid ground.

Social Security survivor benefits also can be a way to restore your financial stability, depending on your age. You can receive survivor benefits starting at age 60, or age 50 if you’re disabled, or at any age if you’re caring for your husband’s child if the child is younger than age 16 or disabled.

Applying for survivor benefits doesn’t preclude you from applying for your own retirement benefit later. You could take a widow’s benefit at 60 and then switch to your own benefit when it maxes out at age 70, if your own benefit would be larger at that point.

Q&A: How to get a higher credit limit after the card company turns you down

Dear Liz: I asked for a credit limit increase on my Visa card from $5,000 to $20,000. I was turned down because of not enough income. I was very disappointed and wonder what if anything I can do to reverse the situation.

I am a 77-year-old retired widow who owns my home with no mortgage. My annual income is around $50,000 from Social Security and my required minimum distributions from IRAs. I have no debt. My investments and savings obviously don’t count. I was about to charge $12,000 in airline tickets and wanted to take advantage of the cash back on the credit card. I always pay my credit card bill in full every month. I feel discriminated against.

Answer: Imagine you’re a lender and one of your customers suddenly demands that you quadruple the amount you’ve agreed to lend her, with the resulting credit line equal to 40% of her income. That might give you pause.

Or perhaps not. Credit card issuers have different policies about when to grant or deny credit, and those policies can change over time as they try to manage the risks of their lending portfolios. Also, issuers may be less generous to their longtime customers than they are to the new customers they’re trying to attract.

Understanding all that can help you formulate a game plan to get what you want. One option is to call the issuer, explain your situation and ask for a temporary credit line increase so you can book those tickets.

Another (and certainly more lucrative) option would be to apply for a new credit card with a fat sign-up bonus from a different issuer. Several cash-back cards offer rewards of $150 to $200 once you spend a certain amount within the first few months, and you would meet that requirement easily with your ticket purchases.

If you’re willing to consider something other than a cash-back card, you can check out travel rewards cards that offer points or miles. Several have bonuses that can translate into $400 or more of free travel.

Applying for a new card might temporarily drop your credit scores a few points, but that shouldn’t be a concern if you’re not planning to apply for a major loan in the next few months.

Q&A: Too many cards?

Dear Liz: My husband and I have opened accounts to take advantage of 0% interest financing for special purchases. These accounts are paid in full prior to the end of the promotional period and we don’t use them again. I’ve read to not ever close any accounts, but am nervous about having so many accounts open with such high limits. Is there potential for issuers to stop granting us credit because we have so much available? Are we at greater risk for identity theft with all of these open accounts?

Answer: People used to believe that closing accounts could somehow help their credit scores. Credit scoring companies and experts have done their best to combat that myth, but in doing so have left some people thinking that they can’t ever close unneeded accounts. That’s not true either.

Your credit scores won’t be hurt by having “too many” accounts with high limits. That’s generally a good thing, since multiple lenders have deemed you creditworthy. You get the most credit scoring benefit, though, from accounts you’re actively using.

Leaving unused accounts open can leave you more vulnerable to fraudulent account takeover. At the very least, it adds to the hassles in your life, since you have to keep an eye on all your accounts. And conceivably a lender could balk at seeing a lot of unused credit lines, even if it didn’t hurt your scores.

You don’t want to close accounts if you’re trying to improve your scores or in the market for a major loan, such as a mortgage or auto loan. Otherwise, though, you shouldn’t worry about closing an account now and then if you’re not using it.

Q&A: How to improve your FICO score

Dear Liz: My FICO score is just under 800. The reason given that it is not higher is that I don’t have any non-mortgage leases. What would be the cheapest way to remedy this without buying something expensive?

Answer: When you get your credit scores, you may be given sometimes-vague reasons for why they’re not higher or lower. The “reason code” you saw probably said something like “no recent non-mortgage balance information.” What that means is that you haven’t been using revolving accounts such as credit cards. To get higher scores, you’d need to dust off your plastic and use it once in a while. (You don’t need to carry a balance to get or keep good scores, however. You can and should pay credit card balances in full each month.)

Any improvement in your scores is likely to be modest, however. Your numbers are already high and the factor known as “mix of credit” — which means responsibly using both revolving and installment accounts — accounts for just 10% of your FICO scores. Plus, there’s no real point in having scores over 800, other than to brag about them. Once your scores exceed 760 or so, you’re already eligible for the best rates and terms.

Q&A: What to do about heavy credit card debt

Dear Liz: I have a lot of credit card debt and am just able to make minimum payments. I feel like after doing this for four years now that I am not getting ahead. I will be 61 this summer and don’t have much saved for retirement. My rent keeps going up along with other expenses. I have an 11-year-old car that is in need of maintenance but don’t have the funds to do it. My question is, what would happen if I walk away from the credit card debt? Will I be facing garnishment?

Answer: Yes, you could be sued and face wage garnishment if you simply stopped paying your debts.

You could consider a debt management plan offered through a credit counselor, which could lower the interest rates you pay. You can get referrals from the National Foundation for Credit Counseling at www.nfcc.org. But you’d be making payments for the next five years or so, when you could be putting that cash toward your retirement.

A Chapter 7 bankruptcy, by contrast, would take a few months and legally erase your credit card debt to give you a fresh start. Bankruptcy is often the best of bad options when you can’t make progress on your debts. Consider meeting with both a credit counselor and a bankruptcy attorney so you understand all your options.

Q&A: Frequent flier cards

Dear Liz: I have an airline credit card but I find it really hard to use the frequent flier miles I get. The “free” flights have gotten more expensive (they take more miles) and harder to find. I’m getting sick of paying an annual fee for nothing. Would I be better off with a cash-back card?

Answer: Good cash-back rewards cards typically offer rebates of 1% to 2% on most purchases, and some have rotating categories that offer rebates of 5% to 6%. If you’re not an elite frequent flier or trying to amass miles for a special trip, then putting most of your spending on a cash-back card can make sense.

Think twice about closing that airline card, though. It likely offers some perks worth keeping, such as free checked bags and priority boarding. If you take one or two flights a year, the card may pay for itself.

Q&A: Discontinuing automatic payments after death

Dear Liz: I use auto-pay for bills in both my business and my personal life. What can we, as consumers, do to protect ourselves and our estates from companies taking advantage of the auto-pay when we die? Do our heirs have to cancel right away? They will have so many other things to deal with in those first months after a loved one dies.

Answer: You may have read about Pia Farrenkopf, the Michigan woman whose mortgage and utility bills continued on auto payment for five years after she died. It was only after her account ran dry, the bank foreclosed on her home and a contractor was sent to fix a hole in the roof that her mummified corpse was found in a Jeep parked in her garage.

The companies receiving the payments weren’t taking advantage of her — they had no way of knowing she was dead. And not all bills will or should stop getting paid at the moment of someone’s death. Even if Farrenkopf’s death had been noticed right away, the person settling her estate likely would have kept the utilities paid and the insurance in force until the home was sold.

If you’re concerned about auto-payments continuing for too long, make sure that your executor or successor trustee has access to your bank accounts. Your bank has a power of attorney form that you can use to grant instant access, or you can provide your login credentials, either now or in the estate planning documents this person will receive at your death.

Q&A: Will closing high-interest cards hurt your credit score?

Dear Liz: I have a few credit cards with very high interest rates — in the mid-teens. My FICO has improved (805 to 830) and I carry little or no balance on the credit cards. I have contacted the issuers asking for lower interest rates but they won’t budge. I have other credit cards with single-digit interest rates. I would like to close the credit cards with the higher interest rates and understand that I may see a drop in my FICO score. How long will take to get my credit score back in the 800s? Is this a wise move?

Answer: Sites that offer credit scores often also have simulators that estimate what might happen if you take certain actions, such as closing cards. You’ll note, though, that these simulators come with plenty of caveats that add up to: Your mileage may vary. A lot.

The reality is that it’s often tough to predict exactly how account closures will affect your scores or precisely how long those scores will take to recover. That doesn’t mean you can never close a card. For example, if you’re not using the card and you’re tired of paying an annual fee, then closing it can make sense if your scores are good and you’re not going to be in the market for a major loan, such as a mortgage. (You don’t want to close or open other accounts while you’re in the process of getting a loan.) If your scores drop a bit, it won’t be a crisis.

Closing a bunch of accounts at once, however, is generally not a good idea — particularly if you’re just doing it to “show them who’s boss.” If you’re not paying interest on these cards, their rates are irrelevant.

Q&A: Will paying off collections help credit scores?

Dear Liz: I have a question about clearing up collections on my credit reports. I used a credit repair company that did help me with most of the setbacks on my credit reports, but I still had collections that were recent and my scores were going up and down. The credit repair company left me to deal with the collections. Will it hurt my scores if I pay them off, and is there a way to get them off my report for good?

Answer: Paying off the collections shouldn’t hurt your scores, but probably won’t help them either. You can try to negotiate with the collection agency to stop reporting the collection accounts in return for payment, something known as “pay for delete” or “pay for deletion,” but debt experts say few agencies will agree to do that.

Plus paying off collections is more complicated than it may seem. Many agencies pay pennies on the dollar for collection accounts, which means virtually anything you pay them is pure profit. That means you should be able to negotiate a significant discount of 50% or more if you can pay in full.

However, not all collectors are ethical. Some pretend to own debts they actually don’t, so any payment to them is money down the drain. Other agencies will re-sell any debt you don’t pay in full to another collection agency, which means more collection calls.

Before you attempt to settle any collection account, visit DebtCollectionAnswers.com and download the free e-book written by consumer advocates Gerri Detweiler and Mary Reed.