Cancel a credit card you won't be using

Dollars & Sense

February 23, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

My daughter has always been very responsible with money. We gave her our credit card for emergencies in college, and through four years at school she never used it. At the beginning of her senior year, she was talked into applying for a credit card of her own in return for a free magazine subscription. Afterward, she felt bad about it and called me for advice. I told her not to activate the card when it arrived.

I regret that advice now. Her bills for this card were never forwarded to her new address, and now that she's out of school she's being turned down for loans because there's a small unpaid balance from that supposedly free magazine. We both have contacted the credit-card company, and its representatives have promised to take care of it, but nothing ever happens. What should we do now?

Your daughter learned the hard way that it's not enough to simply fail to activate a credit card. If you don't intend to use a credit card for which you've applied, you need to cancel it in writing and make sure any balances are removed or paid.

She needs to take care of this problem in writing as well. Your daughter should send a letter by certified mail, return receipt requested, to the credit card company's customer service department, with copies to the company's marketing department and to its chief executive (you can find the name on the company's Web site).

She should explain the problem, including the fact that she never got the magazines or the bills and the fact that representatives of the company promised to make good on the mistake. She also should insist that the account be dropped from her credit report at all three major credit bureaus.

Alternately, she could just pay the bill. But doing so would pretty much ensure the negative mark would stay on her credit report for as long as seven years and continue to interfere with her ability to get credit, so it's worth fighting to have this entry removed.

We work hard for our money and pay taxes on it. We invest the leftovers in an IRA and use the money for retirement. Why, then, do we have to pay taxes again in retirement on money we already paid taxes on before?

You shouldn't be, unless you're figuring your taxes incorrectly.

Yes, income from regular IRAs is considered taxable and is included on your annual tax returns. But you're not paying taxes on the same money twice.

If you got a deduction when you contributed the money, then you didn't pay taxes on the money in the first place. If you didn't get a deduction, then you don't have to pay taxes on the part of your withdrawal that represents that contribution.

In other words, if you made $2,000 in nondeductible contributions each year for 10 years and your account has grown to $100,000, then one-fifth of every withdrawal ($20,000 in contributions divided by $100,000 in total value) is considered tax free.

Meanwhile, you've paid no taxes on the earnings your money has generated all these years. Uncle Sam is simply getting his due after letting your money grow tax-deferred.

There is one kind of IRA -- the Roth -- from which withdrawals are tax-free. What's more, you're not required to take your money out of a Roth IRA in retirement, as you are with a regular IRA. This is one of the few situations where taxpayers really can get a free lunch.

My husband and I want to buy a house in the near future, but we have a bankruptcy in our past. I'd like to get an idea of our credit score before we apply for a mortgage. I work at a new car dealership and I'm sure the financial officer would be willing to run a report on me if I asked. Is this a smart way to go?

A: Probably not.

If you request your credit report and your credit score directly from a credit bureau, or from a service that works with a credit bureau such as MyFico.com, the inquiry itself doesn't hurt your credit score.

When a car dealership or lender requests your score, however, it can be classified the same as though you were actually applying for a loan -- and that can hurt your score.

Given your shaky credit history, you want to minimize any possible negative effect on your score.

So don't use a middleman to get your score -- order it yourself.

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

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