Q&A: Driving up your credit score

Q. I have heard that taking a new car for a test drive at a dealership, even if you don’t buy the car or apply for credit, can impact your credit rating. Is this true?

A. There is only a kernel of truth in what you’re hearing, says Craig Watts, public affairs manager for Fair Isaac, the inventor of the FICO credit score. While test driving a car should have no impact at all on your credit score, it is possible that an unscrupulous dealer could use the information on your driver’s license (some old licenses still show Social Security numbers) to order your credit score—without your permission—from one of the national credit-reporting agencies, Watts says. This kind of inquiry, if it happens, has a very small effect on your score and is not likely to affect your credit.

For more information on the types of things that can affect your credit score, click here.

Debit users say the PIN is mightier

Further evidence that consumers are pretty smart comes from a new survey by the research firm Gartner. It found that most debit-card users would rather punch in a PIN to make a supermarket purchase than sign a payment receipt. This is despite the push many banks have made to get consumers to sign (which rewards the bank with higher transaction fees).

But signing puts you at greater risk of identity theft and, under federal law, your liability for fraudulent charges on a debit card can be greater than for a credit card. This recent article from the Consumer Reports Money Adviser newsletter offers tips on how to avoid high overdraft fees and other bad stuff when using your debit card. 

Incidentally, the Gartner survey showed one payment method consumers preferred even over the debit/PIN combo. That was paying with cash.

Avoid the tax preparer from hell

A recent survey by the  Better Business Bureau found taxpayers often unsatisfied with the service and value of their tax preparers. Shockingly, nearly a third alleged that their preparer had made an error on their return that cost them money in fines and/or added fees. Nearly 20 percent found their preparer unresponsive, and about the same percentage mentioned disputes over billing.

Amazingly, more than 6 percent said the preparer never filed the tax return!

Finding a competent and trustworthy preparer can be daunting. If you still haven't found one, start now. The later the season gets, the less time a competent preparer will have to spend with you. Not sure how to choose? Click here for ideas from Consumer Reports Money Adviser.

Speaking up can save you money

Within a few weeks, one of our staffers negotiated an impressive series of financial victories. First, she used an offer from a rival bank to pressure her own lender to cut the rate on her home-equity line of credit by a full percentage point. Next, she protested her cable company’s $10 monthly increase and gained a $15-a-month loyalty discount instead. Then she coaxed her home heating-oil company to cut its price by 25 cents a gallon, saving about $176 for the rest of the season. Finally, heeding her therapist’s advice to be more assertive, she negotiated a $40 discount off her usual fee of $175 an hour. The moral of the story?  It pays to haggle. The video below gives some tips for effective haggling.

Don’t trust a car dealer to pay off your loan

When trading in your old vehicle for a new one, you might be tempted to leave it to the dealer to pay off the existing loan, either by using part of the old car’s trade-in value or rolling any unpaid balance into your new-car loan. While that arrangement might sound convenient, it carries risks, as many Californians recently learned.

There’s a chance that the dealership may go out of business before paying off the note, leaving you on the hook for the remaining loan balance on your old car, along with the loan on the new car. The problem has become widespread in California, where hundreds of consumers have lost millions of dollars. The state is setting up a fund to reimburse victims.

Another danger is that the dealer might delay paying off the loan, causing your credit report to show missed monthly payments. That can damage your credit score, forcing you to pay more for future loans and insurance.

Consumers for Auto Reliability and Safety, a public-interest group in Sacramento, Calif., advises car buyers to pay off any outstanding loan on their old vehicle before trading it in for a new one. The group notes that doing so may be difficult, especially if the money you need to pay off the loan is tied up in the value of the trade-in. “It could be inconvenient, but how else are you going to know you’re protected?” asks Rosemary Shahan, the organization’s president. “How do you know the dealer is going to pay off the loan and not go out of business?”

If you can’t pay off the loan, you might want to wait until your payments are finished before shopping for a new car. That’s an especially good idea if you’re “upside down” on the loan and owe more money than the vehicle is worth. If you trade in a car under those circumstances, a dealership will typically add the balance of the outstanding loan to the new-car loan, leaving you essentially paying off two loans at the same time.

Similarly, whether you’re buying a used car from a dealership or an individual, make sure that any previous loan has been satisfied. If it hasn’t and the former owner falls behind, the lien holder might threaten to repossess the car. You can tell there’s been a loan if a lien holder’s name is on the front of the title certificate. If there is one, ask for proof that the lien has been paid. The lender should give you a lien release.  —Anthony Giorgianni

Smart investments for inflationary times

As if all the recent talk about recession wasn’t bad enough, now it’s inflation—the result of a higher than expected rise in the Consumer Price Index during January. There’s even talk of stagflation, a slow-growth high-inflation combo that many of us remember unfondly from the 1970s. If you weren’t around in the ‘70s, let’s just say that stagflation was even worse than disco.

What should investors be doing with their money? Here are a few ideas from a recent issue of Consumer Reports Money Adviser newsletter.

• Stocks. Traditionally, stocks have been seen as the best inflation hedge over the long haul, although some experts are beginning to question that wisdom. Rather than speaking of a pie chart split between just stocks and bonds (say 60 percent one, 40 percent the other), they’re likely to recommend a much more diversified portfolio, including the following items.
• Real estate. Investment real estate is one option, but that ties up your cash in a relatively non-liquid asset. And if you become a landlord, you will have to collect rent and fix furnaces. A more leisurely and liquid approach is to invest in real-estate mutual funds, exchange-traded funds, or a real-estate investment trust. Bear in mind, of course, that real estate has its own woes at the moment.
• Commodities. A generation or two ago, we’d have been referring to gold bars; in more recent times, mining stocks. Now financial planners often recommend having a small slice of mutual funds or ETFs that invest in a range of commodities—everything from platinum to pork bellies. The reason is twofold: In times of serious inflation, these kinds of assets often rise in value. Plus, their price movements tend to have little correlation with the stock market, making them a good diversifier in general.
• TIPS. Known formally as Treasury Inflation-Protected Securities, these bonds have two components: a fixed rate of interest rate plus an adjustment pegged to the Consumer Price Index. They’re sold in $1,000 increments and come in 5-, 10-, and 20-year maturities. For more about TIPS and how they work, go to Treasury Direct.
  

Stimulus tax rebate: Will we have to give it back?

Several readers have asked me whether the federal economic stimulus payments that 130 million of us will start getting in May are really just pre-payments on our 2008 taxes. Next year, will we get smaller tax refunds--or owe more--because we're getting a tax rebate now?

My source at the IRS says no. This will not affect our tax refunds next year or in any future year. This is a one-time payment that won't bite us in the rear later on. You won't owe federal tax on this rebate, either. (For more details, click here for the IRS's fact sheet and scroll to the bottom of the page.)

For 2008 only, the government is providing a basic tax credit of up to $600 per single filer or head of household, $1,200 per married couple filing jointly. The credit is based on what you report on your 2007 tax return. If your 2007 tax was lower than those maximums, your credit is less. For example, a single filer who paid $400 for 2007 would have a $400 credit. Eligible individuals will recieve another $300 for each qualifying child under 17. The credit phases out as your income increases.

This rebate is a pre-payment of that credit. It won't reduce your refund next year or increase what you'll owe. It may affect how you fill out your 2008 tax return, so hold on to any notice on it that you receive from the IRS.

Remember last year's telephone excise tax rebate? Mr. IRS tells me to think of it that way. It's essentially a one-time freebie.

Of course, looking at the big picture, it's not a freebie. The government has to get the money from somewhere to pay us all. If it borrows, it has to pay that money back by reducing expenditures somewhere or eventually raising taxes. So yes, in larger sense, we--or future generations--eventually will have to pay for it. But from the point of view of the individual taxpayer in the here and now, it's a gift.

--Tobie Stanger

A free way to value your donated goods

TurboTax's ItsDeductible software is now available free online. This is a great resource if you've donated household goods, clothing and other items and don't know how much they're worth for the purposes of a deduction. ItsDeductible uses market valuations of used goods sold via eBay, which is more likely to be accepted by the IRS than your own guesses. I was able to print out a summary of the donations to each charitable organization but not an item-by-item tally. (You'll probably have to buy TurboTax if you want that level of detail.) Instead, I already had every donated good itemized on paper. I hope the IRS deems that sufficient.

I found ItsDeductible a far more comprehensive and specific source than Goodwill Industries' valuation guide, which is merely a three-page download with value ranges. (If you want to check it out, click on and download "Valuation Guide for Material Donations" on the right side of the above link.)

Don't forget: The IRS says donated items must be in at least good condition to be claimed as deductions. For more information, check out Publication 526, Charitable Contributions, at www.irs.gov.

--Tobie Stanger

The scoop on ticket scalping

Ticket scalping has been around since the 1850s, and legal attempts to stamp out the practice were as futile back then as they are today. But now scalping has become bigger than ever, a booming multibillion-dollar business, thanks to lawmakers who say if you can’t beat ‘em, join ‘em.

The explosion of Internet ticket sales has made it almost impossible for authorities to enforce price caps limiting a seller’s markup over face value. In recent years, all but a handful of states have eased or eliminated restrictions on scalping, making it perfectly legal to charge whatever the market will bear for tickets to hit shows, concerts, and sporting events.

While you’ll still find individual ticket sellers working the crowd outside of stadiums, arenas, and theaters, modern-day scalpers are big Internet-based companies like StubHub, TicketsNow, and RazorGator that prefer to be called brokers or resellers. They’re regulated, tax-paying entities, and have gained added credibility by inking deals with major sports leagues be the “official” ticket resellers.

Proponents see only an upside to scalping moving out of the shadows. They contend that, regulated brokers, are safer, more reliable, and offer greater protections to consumers, while creating a fair, open market for tickets to marquee events.

Critics paint a different picture, suggesting it’s a system that favors the wealthy, putting even more events out of the reach of Joe Fan. Speculators motivated by greed, they argue, buy up season tickets and everything else they can get their hands on, strictly for resale, thus preventing real fans from having a fair chance to see their favorite performers.

What do you think? We at Consumer Reports would like to hear about your experiences—good or bad—with ticket resellers. Were you pleased or dissatisfied, did you encounter any unexpected problems, tricks or traps, and were you able to happily resolve any disputes? Your comments and advice might help other consumers avoid making mistakes in the future, and contribute to a story that we’re working on about the subject. So this is your chance to sound off. —Tod Marks

Tax stimulus refund: More help for Social Security recipients, vets and others

The tax stimulus package signed this week includes tax rebates of up to $300 for folks who don't normally file taxes, including recipients of Social Security, Veterans Administration, and Railroad Retirement benefits who received $3,000 or more last year.

If you're among those affected, you'll have to file IRS Form 1040A for 2007. For help, the IRS recently published a sample of how to fill out Form 1040A. To see it, click here, scroll to the bottom of the news release, and click on and open the PDF file for Sample Form 1040A.

Tax refund? Tax stimulus rebate? How to get both of them faster

This tax season, many of us can look forward not only to a tax refund, but also to a one-time tax rebate, ranging from $300 to $1,200, plus $300 for every child.

To get that rebate, you must file a 2007 federal tax return.  And if you want that new rebate faster, you should file your 2007 taxes electronically and arrange for direct deposit of your tax refund. Doing so will automatically will also ensure direct deposit of your rebate. The IRS asserts this route is faster and more secure than snail mail.

How long can you expect to wait for your refund if you do it all electronically? As little as 10 days from the time the IRS confirms it got your return. And your rebate? The IRS says the earliest rebates will be distributed in early May.

Though the IRS hasn't said so, it stands to reason that early filers would get their rebates early as well. Conversely, it's a sure bet that if you file for an extension, you'll have to wait beyond that time for your rebate. That's because the IRS must have your 2007 return before it can determine the size of your rebate.

Other rebate facts:

•You must have at least $3,000 in income to get the rebate. At $75,000 in adjusted gross income for individuals and $150,000 for couples filing jointly, the rebate begins to phase out.

•If you're eligible to be claimed as a dependent on someone else's tax form, you're ineligible for the rebate. For example, college students who earned more than $3,000 can't get the rebate simply by asking their parents to forego claiming them as dependents.

•A number of folks who normally wouldn't file an income tax form, including certain veterans,  Social-Security recipients, and recipients of Railroad Retirement benefits, may be eligible for the rebate. But they MUST file a 2007 return in order to get it.

•If you've filed a 2007 return already but haven't included the benefits mentioned above--which might qualify you for a rebate--you can file an amended return, Form 1040X, available at  www.irs.gov.

•Beware of e-mail and phone messages on the rebate that purport to be from the IRS. They are most certainly are scams.

Making childrearing (a little) cheaper

Last time the U.S. Department of Agriculture put a price tag on the cost of raising a child from birth to age 18, its figures ranged from $143,790 for lower-income households to $289,380 for higher-earning ones. Here’s the full report if you’re curious.

A lively debate has ensued over whether those numbers are too high or too low, but most of us parents would probably agree on one thing: Raising a child isn’t cheap.

Recently our money team looked at ways to control those costs, focusing not on coupon clipping or generic baby food but on the really big-ticket stuff. You’ll find our advice in the Babies & Kids section of this Web site.

If you have any parental money-saving tips of your own to share, we’d love to hear about them. Just hit Comments, below.

Tax rebate: What's in it for you

Interpretations of the Economic Stimulus Act of 2008--aka the Refund We're Supposed to Spend Act--are dribbling out in the tax world even before the law is signed by President Bush later this week. The IRS is offering bits and pieces of info, including the promise that it will start sending checks by mid-May. There are lots of details still to be worked out. Here's what we do know:

The Act provides up to $600 per single filer, $1,200 per married couples filing jointly with earned income in 2007 of $3000 or more. Each qualifying child you claim will earn you another $300 rebate.

Folks with any combination of earned income, Social Security benefits and certain veterans' benefits of at least $3,000 are eligible for a rebate of $300, or $600 for joint filers. (For more details, click here.)

If for 2007 you owe the IRS less than $600 as a single filer or $1,200 as joint filers, you'll only get a rebate equal to what you owe. For example, if you're a single filer and expect to owe $500 for 2007 but otherwise qualify for the rebate, you'll only get a $500 refund. But next year, you'll have another chance on your 2008 tax return to get the rest of the money.

The higher your income, the less you'll get. The rebate starts to phase out when your earned income reaches $75,000 as a single filer and $150,000 as joint filers. The phase-out for the basic rebate is complete when your adjusted gross income reaches $87,000 as single filer and $174,000 for couples filing jointly. But according to the Congressional Joint Committee on Taxation, you're still eligible for the child rebates beyond those income limits. (To determine if you'll get anything, subtract the income ceiling of either $87,000 or $174,000 from your adjusted gross income and multiply that sum by 5 percent. Subtract that result from the maximum you would have received had there been no phase-outs.)

Here are some examples of what taxpayers can get, gleaned from tax experts CCH and the Congressional Joint Committee on Taxation. And check back here for more details in coming days.

Tax Rebates: What you can expect

Taxpayer                               Qualifying Income                            Rebate
Single                                            $3,000 in Social Security benefits                              $300
Single                                          $50,000 in earned income                                             600
Single/one child                         $50,000 in earned income                                             900
Married couple/two children      $60,000 in earned income                                         1,800
Married couple/four children     $70,000 in earned income                                          2,400
Married couple/two children    $175,000 in adjusted gross income                                 550

Source: CCH  Wolters Kluwer, Joint Committee on Taxation

Spend that tax rebate check? Probably not...

Americans are already thinking about what they'll do with the tax rebates outlined in an economic stimulus bill that President Bush has said he will sign next week. The rebates will be as high as $600 per individual and $1,200 per couple, plus $300 for each child. The Administration and Congress have agreed that the economy could get a shot in the arm if Americans spend that money on goods and services.

But a new poll by CCH, publisher of CompleteTax tax-prep software, shows only 21 percent of Americans plan to spend most or all of those funds at the mall. Nearly half (47 percent) said they would likely use it to pay down debt, and another 32 percent would save it.

You could look at that as heartening news--that Americans are finally getting serious about paying down record debt and improving upon our historically low savings rate. Or you could wonder if people are so burdened by debt and monthly bills that new spending is no longer a choice.

Either way, if this poll proves to be predictive, it's unlikely the economy will get the shot in the arm the politicians expect. But the extra cash will be helpful to many of us. And maybe our behavior will send a message to the pols: Control your debt and nurture your nest egg before you go out and spend more.

--Tobie Stanger

 

And if you thought you hated telemarketers before...

Here’s another reason to be wary: Crooked telemarketers are using an obscure financial instrument known as a demand draft or remotely created check to steal money from unwary consumers’ checking accounts. This article on the Daily Dollar, a Consumers Union blog on money issues, explains how the scam works.

How can you protect yourself, aside from never answering the phone? The Daily Dollar offers this advice: “[R]ead your bank statements carefully and report and dispute any error, no matter how small. Thieves sometimes put through a small charge first, and if that works, try again with a larger charge, or put the same charge through to your account every month. If you aren’t happy with how your bank responds, file a complaint at: www.helpwithmybank.gov."

For more information on where to complain, depending on where you bank, click here.

What’s Social Security worth to you?

Here’s another way of looking at Social Security, courtesy of a new report from the National Academy of Social Insurance: If you bought an insurance company annuity to create an income stream equal to your Social Security benefits, it would run you about $225,000.

That assumes a 65-year-old retiree collecting the average monthly Social Security benefit for 2007 of $1,045. The annuity’s payments would rise with inflation (similar to Social Security) and continue paying a surviving spouse after the retiree died (ditto).  We haven’t checked the report’s math, but its logic seems reasonable.

Of course, the value of your benefits will depend on many factors, one of which is whether you start to collect at age 62, at your “full” retirement age, or as late as age 70. We explored some of the pros and cons of that decision in this recent article in Consumer Reports.

If you’d like to weigh in on the value of Social Security, or any other retirement-related topic, visit our new retirement forum.

Your cost of living may be rising faster than the Consumer Price Index

Inflation as measured by the Consumer Price Index rose 4.1 percent from December 2006 through December 2007 (the latest figures available). But a closer look at the individual spending categories that comprise that headline-making index reveals that in some everyday spending categories, consumers definitely are being hit much harder than the overall rise in the CPI would suggest.

Not surprisingly, energy-related costs rose most steeply over the past year. Gasoline was up 29.6 percent; heating oil rose 28.3 percent; and the rate of increase for public transportation was 7.2 percent, or close to double the CPI rate.

And if it seems like you’re paying more and more for food, you’re right. Grocery prices are up 5.6 percent overall, led by 13.4 percent increase in dairy products, with the price per gallon for milk sometimes vying with the tab for a gallon of gas. Prices rose nearly 6 percent for fruits and vegetables, with increases in the range of 5 percent for cereal, meat, poultry, fish, and eggs. Both gasoline and groceries are the categories that are omitted from the “core inflation rate” that is often the focus of the Federal Reserve when it sets interest rate policy, even though they are a vital component of consumers' weekly budgets.

Drowning your sorrows about rising prices would have been a bargain by comparison—the 3.8 percent rise in alcohol prices actually was less than the total CPI increase. There were a few categories, such as apparel and furniture, for which prices dropped slightly, and there was also one product area that delivered tremendous bang for your buck: Personal computer prices actually declined by 13.2 percent over the past year.  —Andrea Rock

Q&A: Extra FDIC protection for trust accounts?

Q. Is it true that a bank CD that is in trust for children will be protected if the bank fails, even if the amount in the CD is over the FDIC limit?

A. Sometimes. Payable-on-death (POD)  accounts, such as bank CDs or other accounts in trust for a named beneficiary, can be insured over the $100,000 Federal Deposit Insurance Corp. limit, depending on the number of beneficiaries and the amount of the CDs.

"For PODs, each qualified beneficiary is insured up to $100,000," says David Barr,
a spokesman for the FDIC. "So if you have two children, you are covered for $200,000. If you have three children, the coverage is $300,000." Qualified beneficiaries include children, parents, spouses, grandchildren, and siblings.

For more information, call 877-ASK-FDIC or go to the FDIC's Web site.

Making things last and last and…

A staffer who’s been reading old Ripley’s “Believe It or Not!” cartoons recently noticed a common theme. Seems the late Robert L. Ripley had a fascination with people who got an inordinate amount of use out of everyday things.

Consider:

“C. L. Bresee of Missoula, Montana has worn the same trousers 56 years.”

“Susan R. Wright [of] San Diego, Calif., has worn the same bouquet of artificial flowers for 55 years.”

And, our staffer’s personal favorite: “M. I. Freind of Lynbrook, L.I. [N.Y.] used the same set of thumb tacks for 35 years—without losing one.”

Believe it or not.

While Ripley’s heyday roughly overlapped with the Great Depression (1929 to about1939), the impulse to make things last seems to be enjoying a revival in our own time, driven as much by environmental concerns as financial ones.

For tips from the CR Money Adviser on making today’s products last, click here.

Review your credit reports regularly

We often advise consumers to obtain copies of their credit reports once a year to monitor them for accuracy and possible fraud. If you haven't done so in a while, now is a good time to get a look at what your creditors have been saying about you.

Credit reports contain information on your payment history with different creditors, inquiries made by various financial institutions, and public records such as foreclosures or bankruptcies. Consumer reporting companies collect and sell this information to lenders and other businesses that have a permissible interest in it. Your credit record can influence the rates you pay for borrowing and insurance, among other things.

Order your free credit reports online at www.annualcreditreport.com or by calling 877-322-8228. This is the official channel through which you can get your report from each of the three major consumer credit reporting bureaus—Equifax, Experian, and TransUnion. You can get all three all at once, or stagger your requests over the year to keep closer track on your records.

Other Web sites also promote free credit reports, but many of them tie those reports to fee-based services such as credit monitoring. A 2007 Consumer Reports WebWatch analysis of 24 such sites found that nine were owned or closely connected to TransUnion and eight were owned or otherwise closely connected to Experian. The report found that many of the alternative sites had names—like freecreditreport.com—that are similar enough to annualcreditreport.com to cause confusion.

Once you have your credit report, check it for accuracy:

• Make sure that your name, address, Social Security number, and all other personal information is correct.
• Make sure that there are no accounts, debts, bankruptcies, or court judgments on your report that don’t belong to you.
• Make sure that payment histories and balances are correct and that any errors you have reported have been fixed.

To help consumers take advantage of their rights to a free annual credit report, Consumers Union is offering a free online guide, Your Credit Matters, with advice on how to order a free credit report, review it for accuracy, and correct any mistakes.