« click here for more Liz Pulliam Weston
By LIZ PULLIAM WESTON
No Quick Fix For Low Credit Score
Dear Liz: I am trying to purchase another house and my credit is not so good. My FICO credit scores are all around 575. I am trying to correct this but don't know what to do to make a quick fix. I've been on time with my mortgage and credit card payments lately, but I have three cards with $500 limits that are all maxed out. The limits are low because when I got them I had terrible credit, with charge-offs and late payments on my credit reports. I know I need to pay more on these cards, but do I pay them off or just pay them down? I also don't know how to fix the old charge-offs and late payments, other than wait until they fall off my credit reports.Answer: Let's be clear. Your credit isn't "not so good." It's awful. The FICO credit scale ranges from 300 to 850, and half of
Your lousy scores wouldn't have mattered a couple of years ago, when all you had to do to get a mortgage was fog a mirror, but in today's credit crunch they matter quite a bit.
You also need to get over the idea that there's such a thing as a "quick fix" for your credit. You probably didn't get in this mess overnight, and you're not going to be able to repair the damage quickly either. It could take many months, if not years, for a lender to decide you're a good risk.
Still, there are things you can do to speed up that day and boost your scores. For example: Pay off all three credit cards immediately, and in the future don't charge more than 10 percent of your credit limits in any given month.
Yes, that means keeping your monthly charges under $50, but if you want to see a real boost in your scores, that's the fastest way. Continue to pay each balance in full, every month.
Don't waste your time trying to change true, negative information on your credit reports such as late payments and charge-offs.
Though you can sometimes negotiate with collection agencies to remove collection accounts from your reports in exchange for payments, there is little incentive for your original creditors to alter what they say about you. The passage of time will help reduce the effect of those past bad actions on your credit scores, as long as you handle credit responsibly from now on.
Dear Liz: My son has a student loan that he has never claimed on his income tax. I think he was poorly advised by his tax preparer, who told him that the tax benefit would be just $20 or so. He has made six years of payments on these loans. What is your advice for him? He files the 1040A because he has no other deductions.
Answer: Given how easy it is to deduct student loan interest, it's hard to imagine why a tax preparer would discourage him from doing so, even if the benefit was only $20. Then again, it's hard to imagine why anyone filing a 1040A – which is a simplified form – would need a tax preparer in the first place.
It may not be worth the effort to file amended returns, though, especially because you can claim refunds for only three years after you filed the original return.
Dear Liz: I was confused about the answer given to a self-employed reader in last week’s column. Financial planner Delia Fernandez said that if the reader filed for an extension, then he has until the extension deadline – in this case, Oct. 15 – to make a Simplified Employee Pension contribution. It is my understanding that even if an extension to delay the filing date is requested, all taxes due and all contributions to a SEP or IRA must be made no later than April 15. All the extension does is give the taxpayer four additional months to mail in the paperwork. Am I wrong?
Answer: You are wrong. It’s true that taxes must be paid and IRA contributions made by April 15, even if an extension is granted. But employer SEP contributions can be delayed until the last day of the extension deadline, or Oct. 15.
# # #
© 2008, No More Red Inc. Liz Pulliam Weston is author of the new book “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.