by John Ulzheimer for Credit.com
Blemishes on your credit report can cost you, but don't despair. It's never too late to become credit worthy. You just need to get started, using our five steps for improving your credit rating, and remember that results won't happen overnight.
1. Order your credit reports
Find out what the top three credit bureaus (Equifax, TransUnion and Experian) are saying about you. And remember that your information on file is likely to be at least slightly different at each one. Since credit reporting is voluntary, creditors aren't required to report to all three bureaus, but most large national lenders do. However, smaller lenders will typically report only to the one to which they also subscribe for pulling reports. Therefore, it is preferable to order a three-bureau, merged credit report or all three individually from www.annualcreditreport.com. Credit reports should be reviewed at least twice a year for accuracy.
If you've been denied credit, insurance or employment because of your credit report, you are entitled to a free copy of your report from the reporting agency the lender/insurance company used. The company you applied to must supply the credit bureau's name, address and telephone number. You have 60 days after receiving the denial notice to request your copy.
2. Examine your reports carefully
Nearly one-third of credit reports contain serious errors that could cause consumers to be denied access to mortgages, car loans and credit cards. That's because credit bureaus don't verify the information they receive from your creditors. Like it or not, keeping your credit report clean and true is your job. Once you get your three reports, look carefully for everything from typing errors to outdated and incomplete information. Make a thorough list of items you dispute and why.
If the negative information in your report is true, only time and improved habits can change that for the better. Late payments and charged-off accounts remain on your report for seven years, bankruptcies for 10 years. Most creditors, however, look for a steady pattern of payments rather than focusing on one-time or rare occurrences, so consistent on-time bill payments will improve those blemishes.
3. Dispute and document
Since a bad report can cost you money, it pays to be thorough. You can either complete the dispute form provided with your credit report or write a letter. Clearly identify each mistake and state why it's wrong. One recommendation is to send a photocopy of your credit report with the mistakes circled to the reporting credit bureau with copies of your supporting documents.
Keep copies and records of all the forms, letters and documentation that you send the credit bureaus, plus dates sent. In short, document, document, document. The credit bureau must investigate any relevant dispute within 30 days of receiving your letter. Any item that is not verified as accurate by a creditor is removed. If the credit bureau makes any changes to your credit file, it will send you the results along with a free, updated copy of your credit report. Once a negative item is removed from your report, the credit bureau cannot put it back on unless a creditor verifies its accuracy and completeness after the fact -- and sends you written notice.
4. Dissolve your debt
The next task is to devise a spending plan that reduces your debt and allows you to pay on time, all the time. If you're having difficulty making payments, be proactive. Call your creditors and negotiate with them to keep your accounts current and not be reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. The same strategy can be used for fixed-loan payments, but it should only be used for the short-term. You'll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.
Slowly phase out the use of unneeded credit card accounts. But remember to NOT CLOSE THE ACCOUNT. Simply stop using it and pay it off. If you make the very common mistake of closing accounts you will almost certainly negatively impact your credit scores, which strongly considers the ratio of total credit card debt to total available credit or credit limits. A good rule of thumb is to keep your revolving credit card debt to less than 10 percent of your available credit. However, it’s optimal if you keep your balances low so you can avoid revolving balances. This will save you the interest charges
5. Add stability to your credit file
You can also work to add positive information to your credit file. You may have been denied credit because of an insufficient credit file, even though you do have credit. That's because some creditors (local banks, credit unions, and travel, entertainment and gasoline card companies) may not report your credit history to the bureaus. Try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. This is not a requirement and you will not be able to force them to do so. In the future, before opening a new account, ask if your on-time payments will be reported monthly to all three credit-reporting agencies. If the answer is “no” then think about using another lender who will.
If you have really bad credit or even filed for bankruptcy, don't let your credit status go dormant. The faster you jump back in and begin to re-establish good credit by paying regularly on time, the faster you'll improve your credit scores. A secured credit card offers those with no credit and those rebuilding their credit an opportunity to start over and establish a new and solid credit history. Shop around for the best deal available, but limit your applications. Credit scoring models look at how many new accounts you've opened, as well as the number of "inquiries" for those new accounts. A sudden flurry of inquiries can result in a lower score.
Monday, December 29, 2008
Thursday, November 6, 2008
Are You a Compulsive Debtor?
Check out this true/false quiz. Most compulsive debtors will answer yes to at least 8 of the 15 questions.
1. Do your debts make your home life unhappy?
2. Do your debts distract you from your daily work?
3. Are your debts affecting your reputation?
4. Do your debts cause you to think less of yourself?
5. Have you ever given false information to obtain credit?
6. Have you ever made unrealistic promises to your creditors?
7. Does the pressure of your debts make you careless about the welfare of your family?
8. Do you fear your employer, family or friends will learn the extent of your indebtedness?
9. Does the stress of your debts cause you to have difficulty sleeping?
10. When faced with a difficult financial situation, does the prospect of borrowing give you an inordinate feeling of relief?
11. Has anxiety over your debts ever caused you to consider getting drunk?
12. Have you ever borrowed money without adequate consideration to the rate of interest you were required to pay?
13. Do you expect a negative response when you are subjected to a credit investigation?
14. Have you ever developed a regimen for paying off your debts, but broke it under pressure?
15. Do you justify your debts by telling yourself that you are superior to the "other" people, and when you get your "break" you'll be out of debt overnight?
1. Do your debts make your home life unhappy?
2. Do your debts distract you from your daily work?
3. Are your debts affecting your reputation?
4. Do your debts cause you to think less of yourself?
5. Have you ever given false information to obtain credit?
6. Have you ever made unrealistic promises to your creditors?
7. Does the pressure of your debts make you careless about the welfare of your family?
8. Do you fear your employer, family or friends will learn the extent of your indebtedness?
9. Does the stress of your debts cause you to have difficulty sleeping?
10. When faced with a difficult financial situation, does the prospect of borrowing give you an inordinate feeling of relief?
11. Has anxiety over your debts ever caused you to consider getting drunk?
12. Have you ever borrowed money without adequate consideration to the rate of interest you were required to pay?
13. Do you expect a negative response when you are subjected to a credit investigation?
14. Have you ever developed a regimen for paying off your debts, but broke it under pressure?
15. Do you justify your debts by telling yourself that you are superior to the "other" people, and when you get your "break" you'll be out of debt overnight?
Tuesday, October 28, 2008
Credit Card Issuers Jacking Up Rates For No Reason
Here is an interesting article I found on Clark Howard's Website!
Clark is getting scattered calls from listeners who are outraged or perplexed by the actions of their credit card issuer. The issuing banks are raising interest rates by 20% or more -- even if the individual has good credit, has never been late or hasn't even had any change in their credit standing. This is happening across income levels, affecting even successful business owners and moderate to wealthy individuals.
Fortune confirms that people have seen their rates skyrocket for no reason. The magazine profiled a man named John who had a card that went from 7% to 26% even though nothing changed with his financial standing. Bank of America, Citibank and Capital One are among the issuers who are jacking up rates in the face of a "continually changing business environment" -- which simply means "we're doing it because we can."
The Federal Reserve says that 37% of issuers have increased rates. And get this, Business Week reports that the dollars at risk with people who may not pay is greater in the credit market than in the mortgage market. As the magazine writes, "The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets."
The problem with banks jacking up the rates is that they're making it tougher for someone who might have been able to pay at 5%, but could never pay at 30%. They're shooting themselves in the foot.
Here's the takeaway: The only smart move is to pay your debt down or pay it off. Don't assume you're a sitting duck if your standing is decent; you can shop around for a lower rate offer.
Meanwhile, a special warning: If you're in debt over your head, be wary of those debt negotiation firms that are all over the Internet and late-night TV. They're through and through rip-off artists, according to Clark. Do not believe these lying fools about their ability to negotiate with your credit card company and reduce your outstanding balance by 50% or more. These con artists get you to pay them money as a retainer and then tell you to stop making all payments. But many banks won't even take a phone call from these people anymore because they're on to their game.
So what can you do? Try calling your issuer and telling them you're in over your head. You may get blown off or they may work with you. If you get the cold shoulder, go to NFCC.org and find a local affiliate who can help you to come up with a debt-conquering plan.
Taken from Clark Howard's Website...
http://clarkhoward.com/shownotes/2008/10/28/14324/
Clark is getting scattered calls from listeners who are outraged or perplexed by the actions of their credit card issuer. The issuing banks are raising interest rates by 20% or more -- even if the individual has good credit, has never been late or hasn't even had any change in their credit standing. This is happening across income levels, affecting even successful business owners and moderate to wealthy individuals.
Fortune confirms that people have seen their rates skyrocket for no reason. The magazine profiled a man named John who had a card that went from 7% to 26% even though nothing changed with his financial standing. Bank of America, Citibank and Capital One are among the issuers who are jacking up rates in the face of a "continually changing business environment" -- which simply means "we're doing it because we can."
The Federal Reserve says that 37% of issuers have increased rates. And get this, Business Week reports that the dollars at risk with people who may not pay is greater in the credit market than in the mortgage market. As the magazine writes, "The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets."
The problem with banks jacking up the rates is that they're making it tougher for someone who might have been able to pay at 5%, but could never pay at 30%. They're shooting themselves in the foot.
Here's the takeaway: The only smart move is to pay your debt down or pay it off. Don't assume you're a sitting duck if your standing is decent; you can shop around for a lower rate offer.
Meanwhile, a special warning: If you're in debt over your head, be wary of those debt negotiation firms that are all over the Internet and late-night TV. They're through and through rip-off artists, according to Clark. Do not believe these lying fools about their ability to negotiate with your credit card company and reduce your outstanding balance by 50% or more. These con artists get you to pay them money as a retainer and then tell you to stop making all payments. But many banks won't even take a phone call from these people anymore because they're on to their game.
So what can you do? Try calling your issuer and telling them you're in over your head. You may get blown off or they may work with you. If you get the cold shoulder, go to NFCC.org and find a local affiliate who can help you to come up with a debt-conquering plan.
Taken from Clark Howard's Website...
http://clarkhoward.com/shownotes/2008/10/28/14324/
Tuesday, October 14, 2008
How Home Foreclosures Affect Your Credit
The number of homes facing foreclosure jumped 57 percent in January compared to a year ago, with lenders increasingly forced to take possession of homes they couldn’t unload at auctions, a mortgage research firm said. A foreclosure is one of the most credit-damaging events that can ever appear in your credit history. Like a bankruptcy filing, a foreclosure can stay on your credit report for at least seven years. A foreclosure won't ruin your credit rating forever (especially given the sub-prime home crisis that began in 2007), but having a foreclosure on your credit report will lower your credit score. And that can make it more difficult to get another mortgage loan down the road.
How do you define a bank foreclosure?
A bank foreclosure happens when the property owner has fallen behind on or stopped making mortgage payments. In most cases, after three missed payments, banks will start the foreclosure process and send you a written notice. After that, unless you pay the overdue amount owed, the property goes into foreclosure; many foreclosed homes eventually get sold at public auction. One important point to remember: In general, banks want to avoid foreclosures as much as homeowners do. After all, banks make more money when a mortgage is successfully paid off.
Given ever-increasing foreclosures, does my overall credit still suffer?
A low credit score (experts say a foreclosure can lower your credit score as much as 200 points) virtually guarantees that you will pay higher interest rates on everything — especially on home and auto loans. Here’s a good rule of thumb: A person with a low credit score (say, below 600), is virtually guaranteed to pay home mortgage interests rates that are nearly 3% higher than someone with a score above 700. Those percentage differences in interest can add up quickly when you consider that some mortgages last thirty years. (Let’s say you have a $2,000 monthly mortgage at 6% interest. If your rate were 9%, you’d pay more than $700 in interest annually — or nearly $22,000 in interest for the life of the loan.) If you experience multiple foreclosures, you could be denied credit altogether. There has been a lot of talk about foreclosure trends in the news especially in recent years. With many Americans spending well beyond their means, foreclosures have become a common part of the overall real estate landscape. Since a foreclosure will lower your credit score, you need to know the facts about bank foreclosures if you plan to buy a home, or if you currently own a home and foresee any problems making the payments.
Can a foreclosure be deleted from your credit report history?
If foreclosure proceedings are filed against you, there is no legitimate way to have that information removed from your credit report — at least not for seven years. After that, the foreclosure can only be removed from your credit report, which is your official credit history, after you send a written request to the three major credit reporting bureaus. According to the Department of Consumer Affairs, bank foreclosures in the United States rose 47% between 2006 and 2007. And more recently, experts have predicted that by the end of 2009, some 2 million U.S. homeowners will be forced into foreclosure.
Courtesy of CreditDiagnosis.com and http://www.msnbc.msn.com/id/23342585/
How do you define a bank foreclosure?
A bank foreclosure happens when the property owner has fallen behind on or stopped making mortgage payments. In most cases, after three missed payments, banks will start the foreclosure process and send you a written notice. After that, unless you pay the overdue amount owed, the property goes into foreclosure; many foreclosed homes eventually get sold at public auction. One important point to remember: In general, banks want to avoid foreclosures as much as homeowners do. After all, banks make more money when a mortgage is successfully paid off.
Given ever-increasing foreclosures, does my overall credit still suffer?
A low credit score (experts say a foreclosure can lower your credit score as much as 200 points) virtually guarantees that you will pay higher interest rates on everything — especially on home and auto loans. Here’s a good rule of thumb: A person with a low credit score (say, below 600), is virtually guaranteed to pay home mortgage interests rates that are nearly 3% higher than someone with a score above 700. Those percentage differences in interest can add up quickly when you consider that some mortgages last thirty years. (Let’s say you have a $2,000 monthly mortgage at 6% interest. If your rate were 9%, you’d pay more than $700 in interest annually — or nearly $22,000 in interest for the life of the loan.) If you experience multiple foreclosures, you could be denied credit altogether. There has been a lot of talk about foreclosure trends in the news especially in recent years. With many Americans spending well beyond their means, foreclosures have become a common part of the overall real estate landscape. Since a foreclosure will lower your credit score, you need to know the facts about bank foreclosures if you plan to buy a home, or if you currently own a home and foresee any problems making the payments.
Can a foreclosure be deleted from your credit report history?
If foreclosure proceedings are filed against you, there is no legitimate way to have that information removed from your credit report — at least not for seven years. After that, the foreclosure can only be removed from your credit report, which is your official credit history, after you send a written request to the three major credit reporting bureaus. According to the Department of Consumer Affairs, bank foreclosures in the United States rose 47% between 2006 and 2007. And more recently, experts have predicted that by the end of 2009, some 2 million U.S. homeowners will be forced into foreclosure.
Courtesy of CreditDiagnosis.com and http://www.msnbc.msn.com/id/23342585/
Tuesday, September 23, 2008
First-Time Home Buyer Tax Credit
Frequently Asked Questions about the First-Time Home Buyer Tax Credit
The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following questions and answers provide basic information about the tax credit.
1. Who is eligible to claim the $7,500 tax credit? First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.
2. What is the definition of a first-time home buyer? The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. How do I claim the tax credit? Do I need to complete a form or application? You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
4. What types of homes will qualify for the tax credit? Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years.
5. Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750. Please remember that this example is intended to provide a general idea of how the tax credit might be applied in different circumstances.
6. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.
7. I heard that the tax credit is refundable. What does that mean? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).
8. What is the difference between a tax credit and a tax deduction? A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.
9. I am not a U.S. citizen. Can I claim the tax credit? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
10. Does the credit have to be paid back to the government? If so, what are the payback provisions? Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
11. Why must the money be repaid? Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.
12. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit? Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.
13. If I’m qualified for the tax credit & buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
14. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest? Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
15. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
http://www.federalhousingtaxcredit.com/faq.php
The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following questions and answers provide basic information about the tax credit.
1. Who is eligible to claim the $7,500 tax credit? First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.
2. What is the definition of a first-time home buyer? The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. How do I claim the tax credit? Do I need to complete a form or application? You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
4. What types of homes will qualify for the tax credit? Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years.
5. Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750. Please remember that this example is intended to provide a general idea of how the tax credit might be applied in different circumstances.
6. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.
7. I heard that the tax credit is refundable. What does that mean? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).
8. What is the difference between a tax credit and a tax deduction? A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.
9. I am not a U.S. citizen. Can I claim the tax credit? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
10. Does the credit have to be paid back to the government? If so, what are the payback provisions? Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
11. Why must the money be repaid? Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.
12. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit? Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.
13. If I’m qualified for the tax credit & buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
14. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest? Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
15. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
http://www.federalhousingtaxcredit.com/faq.php
Thursday, September 11, 2008
Do You Need To Establish Credit?
So what can you do if you do not have established credit?
One of the quickest ways for you to get established is to become an authorized user. An authorized user is someone who is allowed to use another individual's credit card without being responsible for the bill. Thanks to a recent turnaround by Fair Isaac, developer of the widely used FICO score, this avenue to good credit will continue to be available. According to MyFICO.com, authorized users should be children whose parents are hoping to establish credit for them by adding them as authorized users to their accounts. To protect against the piggybacking loophole and any other such manipulation of authorized user accounts, Fair Isaac has incorporated new technology that protects the score from this kind of abuse. In addition to the authorized user method of establishing credit, parents can also co-sign for student and auto loans. These loans appear on the young person’s credit report and are good ways to build a credit history.
How does becoming an authorized user work?
A credit card holder (someone you know with a history of good credit; for example, your parents or a close family friend) has to designate you as an authorized user. When they do this, the card holder's payment history appears on the authorized user's credit report. If the card holder has stellar credit, it will give the authorized user a high credit score as well. Authorized User accounts can be rescored once they are on a credit file. It usually takes creditors 30-60 days to add a tradeline to the credit file. More than 50 million consumers are listed as authorized users on another person's credit card, according to Fair Isaac.
Other ways to establish credit:
There are other ways to establish credit as well. Here are some things you will need:
· You will need 3 to 6 months for best results
· Be able to qualify for a $300-$500 unsecured credit card.
· Or afford to get a $300-$500 secured credit card
Step 1
Either apply online for an unsecured credit card or a secured card through a bank or creditor. You can normally compare different cards with different interest rates, specials, benefits or "perks" on websites before you actually apply. Find one you like and try to qualify for at least $300 to $500.00. If you can qualify for more, that’s fine as well…but it doesn’t mean you have to spend it.
Step 2
Once you get your card, you will have to activate it and then you can use it. WHEN YOU CAN AFFORD IT.... Buy something for less than half the available balance.
Step 3
When the first bill comes in the mail, pay the minimum payment with maybe $10-$20.00 extra but not much more. When the second bill comes do the same; just pay the minimum payment amount due or just over. Normally you can round up $38 bucks to $50.00 something like that. When the third bill comes, do the same, the minimum payment or just more. Then when the fourth bill arrives you should pay off the complete balance, plus all interest or fees due.
Step 4
Normally by the time your 5th or 6th statement shows up in the mail, you can qualify for a higher credit line or another card. This is because it can take over 30 days for creditors to report to the credit bureaus about your account status. You can then apply for a different card. Generally it is best to go to a different creditor all together. For example, if you first chose Discover then go with a Visa or MasterCard.
Tips & Warnings
· It's good to have both a Visa and MasterCard, since they are the two most common cards.
· Not all merchants take all credit cards. Many merchants don't take Discover cards and the American Express card charges more to merchants so they seem to be the least accepted. However, American Express has the most benefits for card holders, including the American Express Black Card with concierge service for just about anything you can think of. Keep in mind though that you do have to spend monthly volume minimums in the hundreds of thousands, paying it off in very short terms, to qualify for this card.
· The creditors want your money and look for specific things that raise your ability to qualify. The percentage of balance used your ability to carry the debt since you made minimum payments, and the fact that you now have no balance due all help.
· Never use a credit card when you can't afford it and try to only use a credit card for when you have emergencies. Really plan for a way to pay it off in a short time, especially if you get stuck using your credit card to pay for things that you can't afford.
· Since you will end up paying 3 to 4 times what the balance was in interest over time, compounding interest is basically doubling what your monthly rate is. If it shows 26% it's basically 52% interest.
· Use a common credit card calculator to see the amount paid over time.
Some info taken from: http://www.usatoday.com/money/perfi/columnist/block/2008-08-11-credit-card-authorized-user_N.htm and http://www.ehow.com/how_2322303_build-credit-raise-fico-score.html and http://www.mmhabits.com/myfico-credit-scoring-expert-interview/
One of the quickest ways for you to get established is to become an authorized user. An authorized user is someone who is allowed to use another individual's credit card without being responsible for the bill. Thanks to a recent turnaround by Fair Isaac, developer of the widely used FICO score, this avenue to good credit will continue to be available. According to MyFICO.com, authorized users should be children whose parents are hoping to establish credit for them by adding them as authorized users to their accounts. To protect against the piggybacking loophole and any other such manipulation of authorized user accounts, Fair Isaac has incorporated new technology that protects the score from this kind of abuse. In addition to the authorized user method of establishing credit, parents can also co-sign for student and auto loans. These loans appear on the young person’s credit report and are good ways to build a credit history.
How does becoming an authorized user work?
A credit card holder (someone you know with a history of good credit; for example, your parents or a close family friend) has to designate you as an authorized user. When they do this, the card holder's payment history appears on the authorized user's credit report. If the card holder has stellar credit, it will give the authorized user a high credit score as well. Authorized User accounts can be rescored once they are on a credit file. It usually takes creditors 30-60 days to add a tradeline to the credit file. More than 50 million consumers are listed as authorized users on another person's credit card, according to Fair Isaac.
Other ways to establish credit:
There are other ways to establish credit as well. Here are some things you will need:
· You will need 3 to 6 months for best results
· Be able to qualify for a $300-$500 unsecured credit card.
· Or afford to get a $300-$500 secured credit card
Step 1
Either apply online for an unsecured credit card or a secured card through a bank or creditor. You can normally compare different cards with different interest rates, specials, benefits or "perks" on websites before you actually apply. Find one you like and try to qualify for at least $300 to $500.00. If you can qualify for more, that’s fine as well…but it doesn’t mean you have to spend it.
Step 2
Once you get your card, you will have to activate it and then you can use it. WHEN YOU CAN AFFORD IT.... Buy something for less than half the available balance.
Step 3
When the first bill comes in the mail, pay the minimum payment with maybe $10-$20.00 extra but not much more. When the second bill comes do the same; just pay the minimum payment amount due or just over. Normally you can round up $38 bucks to $50.00 something like that. When the third bill comes, do the same, the minimum payment or just more. Then when the fourth bill arrives you should pay off the complete balance, plus all interest or fees due.
Step 4
Normally by the time your 5th or 6th statement shows up in the mail, you can qualify for a higher credit line or another card. This is because it can take over 30 days for creditors to report to the credit bureaus about your account status. You can then apply for a different card. Generally it is best to go to a different creditor all together. For example, if you first chose Discover then go with a Visa or MasterCard.
Tips & Warnings
· It's good to have both a Visa and MasterCard, since they are the two most common cards.
· Not all merchants take all credit cards. Many merchants don't take Discover cards and the American Express card charges more to merchants so they seem to be the least accepted. However, American Express has the most benefits for card holders, including the American Express Black Card with concierge service for just about anything you can think of. Keep in mind though that you do have to spend monthly volume minimums in the hundreds of thousands, paying it off in very short terms, to qualify for this card.
· The creditors want your money and look for specific things that raise your ability to qualify. The percentage of balance used your ability to carry the debt since you made minimum payments, and the fact that you now have no balance due all help.
· Never use a credit card when you can't afford it and try to only use a credit card for when you have emergencies. Really plan for a way to pay it off in a short time, especially if you get stuck using your credit card to pay for things that you can't afford.
· Since you will end up paying 3 to 4 times what the balance was in interest over time, compounding interest is basically doubling what your monthly rate is. If it shows 26% it's basically 52% interest.
· Use a common credit card calculator to see the amount paid over time.
Some info taken from: http://www.usatoday.com/money/perfi/columnist/block/2008-08-11-credit-card-authorized-user_N.htm and http://www.ehow.com/how_2322303_build-credit-raise-fico-score.html and http://www.mmhabits.com/myfico-credit-scoring-expert-interview/
Saturday, September 6, 2008
Your 5-minute guide to managing debt
At some point in our lives, most of us have borrowed too much. First, stop making excuses about why you're in debt. Put that energy into reducing your debt. Debt can be extremely stressful, so tell someone you're in financial trouble. If you can't talk to a family member or friend, contact an organization that deals with debt reduction, such as the nonprofit National Foundation for Credit Counseling. Then get a handle on how big your problem is. When you have no idea how much you owe, simply establishing a number is a critical first step.
Don't avoid the B-word
The best way to start reducing debt is to set up a budget, which is a good way of knowing exactly where your money going. You'll need to add up your income and subtract your expenses, then set up a plan. Be honest about your spending habits and you'll end up with a more realistic budget.
• Budget more than the minimum on credit card payments. Paying the minimum is better than nothing, but you wind up paying a lot more in interest as you chip away at the balances.
• Start an emergency fund -- a savings account that should grow to at least three months of expenses. Without an emergency fund, unexpected costs or loss of income can drive you deeper into debt.
What's your plan?
Use your budget to help you plan your debt-reduction strategy. List all of your debts, from the highest interest rate to the lowest. Aggressively pay down the highest-rate balances while making on-time minimum payments on the others. Your budget will dictate how much you can devote to paying down your balances each month. In addition, consider these tips:
• If you have the money in savings, pay off what you can.
• Use any extra cash -- bonuses, extra paychecks, etc. -- to pay down debts.
• Volunteer to work overtime, or get a second job.
If you can't earn more money, you'll need to spend less. Try these tips:
• Eat at home when possible. Avoid buying lattes and fast food.
• Go cash-only. After the bills are paid, allot yourself a certain amount of cash for gas, groceries, etc. When the cash is gone, the fun is done.
• Forgo premium cable-TV channels and high-speed Internet service. Your public library typically not only offers free Wi-Fi but computer access as well.
Consolidation is a dangerous road
As you grapple with repayment, the temptation is great to borrow from Peter to pay Paul in one lump sum. You might be better off paying your debts bit by bit.
• Consider consolidating your loans only if you have the discipline to not use your credit cards. Consolidation means you take out one loan to cover all of your existing payments. If you do transfer a balance from a card, destroy that card so you won't be tempted to run up the balance again.
• Don't use a home-equity loan to pay off credit card debt. Even if the home-equity rates are lower than your cards' interest rates, trouble looms if you run up your balances again.
• Don't borrow from your 401(k). The closer you get to retirement, the more you'll regret it.
• Skip credit-repair clinics that may charge you hundreds of dollars to fix your credit record.
• Don't stretch to buy a house, even if everyone tells you it's OK. Buying too much house could mean giving up other things you want: vacations, eating out or college for your kids.
Face up to your credit cards
Once you're out of debt, how can you stay that way? Of course, stick to your budget. In addition, figure out how to deal with credit cards, which likely got you into this mess in the first place.
• Stop charging right now.
• Cut up all but one of your cards, the one with the lowest interest rate. Use that card only for emergencies.
• If you continue to use your credit cards, pay in full every month and avoid interest charges altogether.
• Pull your credit reports once a year and check them for errors.
• Call your creditors and ask for lower rates.
• Leave your credit cards at home. Shop with a list and buy only what's on the list; don't be tempted by sale items you don't need.
• Don't use retail-store credit cards for the discounts. Chances are that card carries a high interest rate that you'll have to deal with if you don't pay off your balance each month.
Taken from: http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/Your5MinuteGuideToManagingDebt.aspx
Don't avoid the B-word
The best way to start reducing debt is to set up a budget, which is a good way of knowing exactly where your money going. You'll need to add up your income and subtract your expenses, then set up a plan. Be honest about your spending habits and you'll end up with a more realistic budget.
• Budget more than the minimum on credit card payments. Paying the minimum is better than nothing, but you wind up paying a lot more in interest as you chip away at the balances.
• Start an emergency fund -- a savings account that should grow to at least three months of expenses. Without an emergency fund, unexpected costs or loss of income can drive you deeper into debt.
What's your plan?
Use your budget to help you plan your debt-reduction strategy. List all of your debts, from the highest interest rate to the lowest. Aggressively pay down the highest-rate balances while making on-time minimum payments on the others. Your budget will dictate how much you can devote to paying down your balances each month. In addition, consider these tips:
• If you have the money in savings, pay off what you can.
• Use any extra cash -- bonuses, extra paychecks, etc. -- to pay down debts.
• Volunteer to work overtime, or get a second job.
If you can't earn more money, you'll need to spend less. Try these tips:
• Eat at home when possible. Avoid buying lattes and fast food.
• Go cash-only. After the bills are paid, allot yourself a certain amount of cash for gas, groceries, etc. When the cash is gone, the fun is done.
• Forgo premium cable-TV channels and high-speed Internet service. Your public library typically not only offers free Wi-Fi but computer access as well.
Consolidation is a dangerous road
As you grapple with repayment, the temptation is great to borrow from Peter to pay Paul in one lump sum. You might be better off paying your debts bit by bit.
• Consider consolidating your loans only if you have the discipline to not use your credit cards. Consolidation means you take out one loan to cover all of your existing payments. If you do transfer a balance from a card, destroy that card so you won't be tempted to run up the balance again.
• Don't use a home-equity loan to pay off credit card debt. Even if the home-equity rates are lower than your cards' interest rates, trouble looms if you run up your balances again.
• Don't borrow from your 401(k). The closer you get to retirement, the more you'll regret it.
• Skip credit-repair clinics that may charge you hundreds of dollars to fix your credit record.
• Don't stretch to buy a house, even if everyone tells you it's OK. Buying too much house could mean giving up other things you want: vacations, eating out or college for your kids.
Face up to your credit cards
Once you're out of debt, how can you stay that way? Of course, stick to your budget. In addition, figure out how to deal with credit cards, which likely got you into this mess in the first place.
• Stop charging right now.
• Cut up all but one of your cards, the one with the lowest interest rate. Use that card only for emergencies.
• If you continue to use your credit cards, pay in full every month and avoid interest charges altogether.
• Pull your credit reports once a year and check them for errors.
• Call your creditors and ask for lower rates.
• Leave your credit cards at home. Shop with a list and buy only what's on the list; don't be tempted by sale items you don't need.
• Don't use retail-store credit cards for the discounts. Chances are that card carries a high interest rate that you'll have to deal with if you don't pay off your balance each month.
Taken from: http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/Your5MinuteGuideToManagingDebt.aspx
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