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.