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| The Basics | An unused credit card comes back to haunt
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Your daughter never activated the card she requested, but then failed to cancel it. Now her credit record is at stake. Act now, and do it in writing.
By Liz Pulliam Weston
Question: My daughter has always been very responsible with money. We gave her our credit card for emergencies in college and, through four years of college, she never used it. At the beginning of her senior year, however, 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. Apparently, her bills for this card were never forwarded to her new address, and now that shes out of school shes being turned down for loans because theres a small unpaid balance from that supposedly free magazine. We have both contacted the credit-card company and its representatives have promised to take care of it, but nothing ever happens. What should we do now?
Answer: Your daughter learned the hard way that its not enough to simply fail to activate a credit card. If you dont intend to use a credit card for which youve applied, you need to cancel it in writing and make sure any balances are removed or paid.
Your daughter should send a letter by certified mail, return receipt requested, to the credit-card companys customer service department with copies to the companys marketing department and to its chief executive officer (you can find the name on the companys 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 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 up to seven years and continue to interfere with her ability to get credit, so its worth fighting to have this entry removed.
Taxed twice? Nope
Q: We, the people, 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?
A: You shouldnt be, unless youre figuring your taxes incorrectly. Yes, income from regular IRAs is considered taxable and is included on your annual tax returns. But youre not paying taxes on the same money twice.
If you got a deduction when you contributed the money, then you didnt pay taxes on the money in the first place. If you didnt get a deduction, then you dont 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 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, youve 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 all these years.
(There is one kind of IRA where withdrawals are tax-free, and thats the Roth IRA. Whats more, youre not required to take your money out of a Roth in retirement, as you are with a regular IRA. This is one of the few situations where taxpayers really can get a free lunch.)
Don't use a middleman to check credit
Q: My husband and I want to buy a house in the near future, but we have a bankruptcy in our past. Id like to get an idea of our credit score before we apply for a mortgage. I work at a new car dealership, and Im 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 doesnt hurt your credit score.
When a car dealership or lender requests your score, however, it can be classified the same as if 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 impact on your score. So dont use a middleman to get your score -- order it yourself. You can order your credit report for a small fee from each of the three major credit bureaus or use the Credit Reports feature on MSN Money.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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