Ask Liz Weston

Get smart with your money

Q&A

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

By

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: Don’t rush when setting up your living trust

By

Dear Liz: Your column recently answered a question about whether a living trust was the right move, and I thought you mentioned a free online form or worksheet that one could download and fill out. Where can I find that?

Answer: Many sites offering free software or forms are actually subscription services. You typically use a credit card to sign up and are charged a monthly fee after the free trial period ends. If you can wrap up your estate planning in short order and cancel before the fee kicks in, your trust may be free — but given what’s at stake, it’s not a good idea to rush.

After all, if you make a mistake with your estate planning that’s revealed after your death, you can’t come back and fix it. That means your desire to save a few bucks could cost your heirs dearly.

At a minimum, you should consider consulting with an attorney to ensure you’re not making obvious errors. Some of the do-it-yourself sites, including LegalZoom and RocketLawyer, offer the option to consult with a lawyer. RocketLawyer, a $40-a-month subscription service, has a seven-day free trial. LegalZoom sells a $269 living trust package that includes a 30-day free trial of its subscription advice service. After the free trial, the subscription costs $15 a month. Legal self-help site Nolo has an online living trust form for $60 that doesn’t include advice, but you can use Nolo’s attorney directory to find an expert you can hire for a review.

If your situation is at all complicated — blended families, special needs children, contentious heirs, family businesses, foreign assets and large estates all count — then it’s best to seek out an experienced estate planning attorney to draft your paperwork.

Q&A: Get your credit score ready for the home-buying process

By

Dear Liz: What score do you need to be approved for a mortgage? Is 520 even close? If not, how do I get that score higher quickly?

Answer: A score of 520 on the usual 300-to-850 FICO scale is pretty bad. Theoretically, you might be able to get a mortgage if you can make a large down payment, but you’ll have more options — and pay a lot less in interest — if you can get your scores higher.

That, however, takes time. You need a consistent pattern of responsible credit behavior to start offsetting your mistakes of the past. If you don’t already have and use credit cards, consider applying for a secured credit card, which requires a cash security deposit, typically of $200 or more. You’ll get a credit limit equal to your deposit. Using the card lightly but regularly, and paying in full every month, can help your scores.

A credit builder loan, offered by credit unions and the online company Self Lender, is another way to improve your credit while building your savings at the same time. The money you borrow is put into a savings account or certificate of deposit that you can claim once you’ve made 12 monthly payments. Making your payments on time helps improve your credit history and scores.

Taking a year to build your credit also would give you more time to save for your down payment and for closing costs. Rushing into homeownership is rarely a good idea, so take the time you need to get your financial life in order first.

Q&A: Ease identity theft fear by checking your credit report

By

Dear Liz: I am suddenly receiving junk mail addressed to my estranged brother at my house. I’ve been in this house for 15 years and have never before gotten mail addressed to him. Is it possible he applied for credit or something similar using my address? He has always had money issues.

Answer: It’s more typical for an identity thief to divert a victim’s mail to his own address than to cause junk mail to be sent the victim’s way. Still, it can’t hurt to check your credit reports via www.annualcreditreport.com to see if there are any accounts or activity you don’t recognize.

Q&A: Don’t get tripped up by invalid Roth IRA contributions

By

Dear Liz: A friend told me that when he takes out his required minimum distribution from his traditional IRA and pays the tax, he then puts the money in his Roth IRA. I believe since this was not earned income, this was wrong. Who’s right?

Answer: The money contributed to an IRA doesn’t have to be earnings, necessarily, but your friend or his spouse must have income earned from working to make an eligible contribution. Earned income includes wages, salary, tips, bonuses, professional fees or small business profits. Earned income does not include Social Security benefits, pension or annuity checks and distributions from retirement accounts.

Another restriction is that contributions can’t be greater than the amount of earned income. If your friend or his spouse earned $3,000 last year, that’s all he’d be allowed to contribute — not the $6,500 maximum allowed for people 50 and over.

The ability to contribute to a Roth begins to phase out when someone’s modified adjusted gross income exceeds certain amounts. In 2017, single filers’ ability to contribute phased out between $118,000 and $133,000. For married couples filing jointly, the phase out began at $186,000 and ended at $196,000.

The penalty for ineligible contributions is 6% of the ineligible amount. The penalty is owed each year the taxpayer allows the lapse without correcting the oversight. If your friend has been doing this for several years, the penalty will be pretty painful.

He could cross his fingers and hope the IRS doesn’t notice, but the error isn’t that hard for the agency to catch. The IRS would simply need to compare Form 5498, which IRA custodians issue to report contributions, to your friend’s income and the sources of that income to know whether he was eligible to put money in an IRA.

Q&A: How to improve your credit score and whether you should bother

By

Dear Liz: My credit scores are good, but I was wondering if there is a way to bring your scores to 800 or more if your income isn’t that high. I always pay my bills on time and my credit card off each month. In the last two years, I took out a small loan to pay off a car, then paid off furniture and now am paying on six new windows for my home.

My FICO scores run from 747 to 781. I’m told the reason they aren’t higher is that the number of accounts I have is too low and that my credit report shows no recent nonmortgage installment loans or “insufficient recent information” about such loans. I’m pleased that my scores are that high, but they say you get the best low-interest loans with a score over 800.

Answer: It’s not true that you need FICO scores of 800 or above to get the best deals. The best rates and terms typically are available once your scores are above 760 or so on the usual 300-to-850 FICO scale. Some lenders set the bar lower, to 740, 720 or even less. Also, your income is not a direct factor in your credit scores — although having a higher income can lead to creditors granting larger lines of credit, which could favorably impact your scores.

If what you’re after is bragging rights, there are some ways to boost good scores even higher.

The easiest may be to make more frequent payments on your credit card to reduce your credit utilization, or the amount of available credit you’re using. If your issuer reports your statement balance each month to the credit bureaus, paying off what you owe a few days before the statement closing date will reduce your apparent credit utilization. Just remember to pay off any remaining balance once you get your bill.

Another approach would be to apply for another credit card and spread your purchases between the two cards, which also can lower your credit utilization. Either way, continue to pay your cards in full, since there’s no credit scoring advantage to carrying a balance.

Taking out another installment loan could boost your scores, but it’s not smart to borrow money you don’t need if your scores are already good.

Remember, too, that there are many different credit scoring formulas. There are different versions and generations of the FICO score as well as FICO rivals such as VantageScore.

If you achieve an 800 with one type of score, you might not with another — and whatever score you achieve, you might not keep for long. Your scores fluctuate all the time, based on the changing information in your credit files.

It’s worth the effort to improve bad or mediocre scores because those can cost you in many ways such as higher interest rates, higher insurance premiums, bigger utility deposits and fewer options for cellphone service. Improving already good scores doesn’t offer much if any payoff, so it’s usually not worth incurring extra costs to do so.