Q&A: Car repo is a nonstarter

Dear Liz: I had to move to assisted living due to a stroke. I no longer need my car — or the car payment. Can I simply stop paying and let it be repossessed? There are about 18 months to go before it’s paid off. I don’t need great credit anymore and our current expenses exceed our income.

Answer: If you’re that close to paying off the loan, then you probably have a good chunk of equity. It would be a shame to lose any of that value to the costs of repossession.

Typically repossessed cars are sold at auction, often for less than their resale value. The proceeds, minus the expenses of repossessing and preparing the car, are applied to your loan. You’d only get what’s left over. (If what’s left over is less than what you owe, the amount is added to your debt.)

This bad financial outcome is on top of the damage done to your credit, which can be substantial. Even if you think it unlikely you’ll need credit again, you don’t know for sure that you won’t.

If you have the option of selling the car to a private party or dealer — or asking a trusted friend or relative to help you do so — that’s usually a much better way to go than letting the vehicle be repossessed.

Q&A: To build credit, try this set-it-and-forget-it trick

Dear Liz: I have little credit history and my Experian credit score is about 620. My wife has no credit history. We are in the process of increasing our creditworthiness. I have an unsecured credit card from my credit union. She will be getting a secured credit card. We will use these lightly and regularly, paying them off each month. Does using my credit card to pay a utility bill each month work for building credit?

Answer: Absolutely. As long as your credit cards report to all three credit bureaus, your on-time payments will build your scores.

To make things easier, you could set up a recurring charge and automatic payment. Utilities typically allow customers to pay their bills automatically with credit cards, and credit cards usually offer the option of paying automatically each month. You’re normally given three options: paying only the minimum, paying in full or paying a set dollar amount.

Recurring charges ensure your card shows regular activity, while automatic payment should eliminate the risk of missing a payment. A single skipped payment could be a significant blow to your credit scores.

Another option to consider is a credit builder loan, which many credit unions and community banks offer. Typically, the amount you borrow is placed into a savings account or certificate of deposit while you make payments.

When you’ve paid the loan in full, usually after 12 months, you claim the cash. The payments help build your credit, and the cash could be the start of an emergency fund.

Wednesday’s need-to-know money news

Today’s top story: Smart ways to establish credit in 2020. Also in the news: 3 strategies to recover from holiday overshopping, the pros and cons of merging money when married, and how to downgrade your Chase card without losing your points.

Smart Ways to Establish Credit in 2020
Sorting through the options.

Overshopped in December? Try These 3 Strategies to Recover
Beating the holiday shopping hangover.

Does Marriage Have to Mean Merging Money?
A look at the pros and cons.

How to Downgrade Your Chase Credit Card Without Losing Your Points
A change in annual fee has customers thinking twice.

Friday’s need-to-know money news

Today’s top story: How to take charge of your credit this year. Also in the news: Several Chase cards will earn more rewards of Lyft rides, 6 inspired ideas for traveling smarter this year, and how much you need to save every month to earn $50K a year in interest for retirement.

How to Take Charge of Your Credit This Year
Take a crash course in credit.

Several Chase Cards Will Earn More Rewards on Lyft Rides
A boost for rideshare customers.

6 inspired ideas for traveling smarter this year
Rethinking old travel habits.

How much you need to save every month to earn $50,000 a year in interest alone for retirement
Crunching the numbers.

Friday’s need-to-know money news

Today’s top story: AmEx makes it easier for immigrants to access credit. Also in the news: Retirement savings mistakes financial advisors see too often, big changes could be in store for student loan borrowers, and why you shouldn’t tell the person you just started dating about how much money you have.

AmEx Makes It Easier for Immigrants to Access Credit
How the new feature works.

7 Retirement Savings Mistakes Financial Advisors See Too Often
How to avoid them.

Big changes could be in store for student loan borrowers
Rewriting the rules.

Don’t Tell the Person You Just Started Dating How Much Money You Have
Keep it to yourself for now.

Wednesday’s need-to-know money news

Today’s top story: Why your credit score isn’t the only gage of financial health. Also in the news: Car buying tips from an undercover salesman, 8 things that won’t hurt your credit, and how to control what could take a big bite out of your retirement nest egg.

Your Credit Score Isn’t the Only Gauge of Financial Health
The numbers you need to pay attention to.

5 Car-Buying Tips From My Days as an Undercover Salesman
How to navigate the car buying process.

8 Things That Won’t Hurt (Whew!) Your Credit
Starting with checking your credit score.

Here’s what could take a big bite out of your retirement nest egg — and how you can control it
Pacing yourself for the long haul.

Q&A: Be strategic when closing credit accounts

Dear Liz: I recently moved to a new state and would like to open a credit card at my new credit union. I’m concerned that closing my old credit union account and card will hurt my credit scores, which are over 800. The old card, which I no longer use, has a high credit limit. My income is also lower, so I’m not sure how that will affect the credit limit I get.

Answer: Closing credit accounts can ding your credit scores, but that doesn’t mean you should never close an unwanted account. You just need to do so strategically.

First, understand that the more credit accounts you have, the less impact opening or closing an account typically has on your scores. If you have a dozen credit cards, for example, closing one will likely have less impact than if you only have two.

Still, you’d be wise to open the new account before closing the old one. That’s because closing an account lowers the amount of available credit you have, and that has a large impact on your scores.

If the new issuer doesn’t give you a credit limit close to that of the old card, you’re still probably fine closing the old account if you have a bunch of other cards. If you don’t, though, you may want to hold on to the old account to protect your scores.

Q&A: Adding a child as a credit card user

Dear Liz: I’ve read that adding a child as an authorized user on your credit card could help build his or her credit history. But I was specifically told that this was not the case, as the child’s Social Security number was not primary.

Answer: Whoever told you may not have understood how authorized user activity typically is reported, or may have been talking about a specific issuer’s policy.

Adding someone as an authorized user to a credit card typically results in the history for that card being added to the authorized user’s credit report. That in turn can help the authorized user build credit history and improve his or her credit scores.

Some smaller issuers, such as credit unions or regional banks, may not report authorized user activity to the three credit bureaus, but all of the major credit card companies do. Some of these big issuers, however, don’t report the information if the authorized user is younger than a certain age or if the information is negative. The age cutoff varies by issuer. For American Express and Wells Fargo, for example, it’s 18; for Barclays, it’s 16 and for Discover, it’s 15. Other major issuers don’t have an age cutoff. American Express and U.S. Bank also won’t report to the authorized user’s credit file if the account is delinquent.

The credit bureaus, in turn, have their own policies. TransUnion includes whatever the issuers report. Equifax adds the information to the credit report if the authorized user is at least 16. Experian adds the information supplied by the issuers, regardless of age, but will remove it if the original account becomes “derogatory” — which typically means payments are skipped or the account is charged off.

If you want to help a child build credit by adding the child as an authorized user, you’ll want to make sure you’re adding him or her to a card that will actually do some good. A quick call to the issuer can help you find out its policy on reporting authorized user activity.

Friday’s need-to-know money news

Today’s top story: Stressed to Pick the Best? Try ‘Good Enough’ money decisions instead. Also in the news: How to get your credit disaster-ready, 7 budgeting tips for every type of budgeter, and 9 money moves every new grad should make.

Stressed to Pick the Best? Try ‘Good Enough’ Money Decisions Instead
When good is good enough.

How to Get Your Credit Disaster-Ready
Be ready for emergencies.

7 Budgeting Tips for Every Type of Budgeter
Finding the right approach.

9 Money Moves Every New Grad Should Make
Welcome to the beginning of your financial life.

Wednesday’s need-to-know money news

Today’s top story: How to get your credit disaster-ready. Also in the news: Watch your credit card rewards pile up with these 5 tips, comparing your 401(k) to the average, and what to know about buy now, pay later online loans.

How to Get Your Credit Disaster-Ready
Be financially secure when disaster strikes.

Watch Your Credit Card Rewards Pile Up With These 5 Tips
Stacking strategies.

How Does Your 401(k) Compare to Average?
How your company’s plan stacks up to the competition.

What to Know About Buy Now, Pay Later Online Loans
Pay attention to the fine print.