Mending poor credit takes time, wisdom

Dollars & Sense

January 26, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

My husband and I have been unable to finance a badly needed four-door used car because our credit isn't good enough. Car dealers have graced us with copies of our credit reports, but these turned out to be papers with numbers that are incomprehensible. I've tried to order free credit reports on the Internet, but the deals are usually come-ons for other services and require a credit card - which we don't have. What do we do now?

When you don't have good credit, you have to start building it. Unfortunately, the process takes time, which means it may be awhile before you can get that badly needed four-door used car.

Start by getting copies of your credit reports from each of the three major credit bureaus: Equifax at (800) 685-1111, Experian at (888) 397-3742 and TransUnion at (800) 888-4213. These reports will be more user-friendly than the ones you saw, which are designed for lenders who are familiar with the credit process.

You should scan the reports for any errors, accounts that aren't yours or negative information that's more than 7 years old (or, in the case of a bankruptcy filing, more than 10 years old). The reports include information about how to get these problems corrected.

Pay attention to the reasons given for your credit score not being higher. If it's because you have unpaid bills, you probably need to satisfy those before your score will improve. If you have late payments, that should underscore the need to pay all your bills on time. If it's simply because your credit is too new or you don't have many credit accounts, then your real work begins.

Start by applying for a card from a gas company or a department store, which usually are the easiest to get. Use the card lightly but consistently, charging something every month and paying off the balance.

If you apply for a couple of these cards and don't get approved, don't apply for others because that could hurt your score further. Instead, consider getting a loan from your credit union or a small bank - perhaps one that's backed by your savings account or other collateral - and pay it back over time.

After a few months of paying either the cards or the loan on time, you also might apply for a secured credit card. These require you to deposit money and give you a credit line equal to your deposit. (You can learn more about these at Bankrate.com, which has a list of the best secured card deals.) Look for a card that will convert to a regular credit card after a year or two.

Once you've had a regular credit card for a while, you should be able to get approved for a car loan and get a decent interest rate.

For more information on building or rebuilding credit, get a copy of Robin Leonard's book, Money Troubles: Legal Strategies to Cope With Your Debts (2002, Nolo Press). Good luck.

I've owned 2.5 acres of undeveloped desert land for more than 30 years and have finally decided to sell it for $20,000 cash. Does the tax-free exclusion for real estate profit apply to land as well as to homes? If not, what capital gains rate am I likely to pay? I'm in the 15 percent bracket. And can I deduct the property taxes I paid over the years?

Unfortunately for you, the ability to exclude up to $250,000 in home sale profits from your taxes applies only to your primary residence. Rental property, vacation homes and raw land are treated like other assets, with any profit subject to capital gains tax.

If the sale profit doesn't push you into a higher bracket, you'll pay federal capital gains tax of 8 percent, plus whatever rate your state charges. People in higher brackets would pay the maximum capital gains rate of 20 percent - again, plus whatever state tax is due.

You should have been deducting the property taxes all along as an investment expense. They can't be subtracted now from your sale price as a way to reduce your taxable profit. If you made any improvements to the property, however, those could be used to reduce your profit and thus your tax. You'd be smart to consult a tax professional for more details.

Liz Pulliam Weston is a contributor to The Los Angeles Times, a Tribune Publishing newspaper.

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